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spk06: Ladies and gentlemen, thank you for standing by for QIYI Holdings Inc. third quarter 2023 earnings conference call. Please note that today's call, including management's prepared remarks and question and answer session, will all be in English. Simultaneous interpretation of Chinese is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese language line. At this time, all participants are in a listen-only mode. Today's conference is being recorded. I would now like to hand the call over to your host, Ms. Sitting Lee, IR Director of the company. Please go ahead, Sitting.
spk04: Thank you, operator. Good evening and good morning, everyone. Welcome to Katie Holdings' or Baker's third quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, investors.katie.com. On today's call, we have Mr. Danny Peng, our co-founder, chairman, and chief executive officer, and Mr. Cao Xu, our executive director and chief financial officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call, as we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non-gap measures to the comparable gap measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in R&D. For today's call, the management will use English as the main language. please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management statements in the original language will prevail. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.
spk02: Thank you, Siting. Hello, everyone. Thank you for joining Baker's third quarter 2023 earnings conference call. In the third quarter, the real estate market showed a notable rebound following the tone setting of the political bureau meeting and a series of supportive politics, including modification to first-time homebuyers' qualifications in first-tier cities. The degree of support and the implementation of these favorable measures, as well as the real estate market's performance, both went beyond our expectations. Our focus this year has been on contemplating the future of the long term and align our strategy with it. We are entering a new phase that we call crossing the next mountain. This phase begins as the market continues its shift from same property purchases as investment assets to prioritizing residential housing for the quality of living itself. In this transaction, We must also evolve from a transaction-centric operating model to one that is dedicated to ensure better living experiences for our customers. This is a largely untapped market with vast opportunities. Real estate's return to a focus on people's better living signals are promising future ahead of us. With industry endurance and insight, we have cultivated Over the years, we are well positioned to grow in a new phase, encompassing many possibilities of better living. Beike has established the industry's most powerful infrastructure, our AECM, throughout our existing home transaction business. This infrastructure, integrating our online databases and traffic networkers with offline stores and edge networkers, lays a solid base for us to explore new possibilities. Additionally, our management expertise for large groups in our digital capabilities and data-driven strategies collectively support our journey into this exciting future. This July, we took an important step toward our objectives by upgrading our corporate strategy to one-body-three-wins, This is a key step in our roadmap to becoming a well-solved residential service platform for better living. As we navigate the dynamic landscape, we need a deeper, differentiated mindset and knowledge base, as well as a set of mutual principles and guidelines to identify core value propositions to drive us forward in the right direction. To the end, there are a host of key questions we are asking ourselves, what value can technology bring to both customers and service providers? Our business segments are separated, but the customers are asking for a one-stop solution. In what ways can we unite our vertical business segment to create horizontal one-stop services that meet customers' needs? How can we maximize customers' living endurance and extent beyond merely delivering transactional value? What's our value proposition to different stakeholders in our industry, including our partners and service providers? How do we focus on offerings, true value, and humanistic care for our service providers, rather than treating people as tools and channels? You're addressing the broader residential industry. Do we look for growth through physical expansion or through generating chemical reaction to drive industry-wide evolution? The next step to posing these questions is calling on everyone in our organization to think about them and working together to address these topics. While engaging in these crucial reflections to direct our strategy, we are also implementing the organizational modifications and business initiatives of our OneBody3Win strategy, which will be reflected in our performance metrics. With the easing of COVID restrictions, 10% demand dropped the market's recovery in the first quarter of this year. However, subsequent home transaction market activities deviated from historical seasonal trends. New home market is still facing some challenges. In the third quarter, we recorded a GTV or RMB $655.2 billion. There was a 2%. and a 27% year-over-year decrease in existing home transactions and new home transactions, respectively. And our overall performance has exceeded the expectations. Our revenue for the quarter was RMB 17.8 billion, up 1.2% year-over-year. Year-to-date, DTV has grown by 23%, with existing home transactions up 28% new home transaction up by 13%. In our efforts to manage risk and improve efficiency over the past two years, our one-body operations, which is our home transaction services, are more agile and efficient. It's now time to broaden our collaboration with more industry partners and service providers as we advance together toward offering one-stop residential services for better living. Here, we will further institute standardization for people, objects, and services to promote the industry advancements over the next decades. Starting in the third quarter, we accelerated our store network expansions. In September alone, we added around 1,300 newly and newly connected stores nationwide, excluding Beijing and Shanghai. In the third quarter, contracted sales from our home renovation and furnishing business reached RMB 3.26 billion, an increase of 66% year-over-year. Year-to-date contracted sales reached RMB 9.39 billion, up 19% year-over-year on our pro forma basis. Additionally, contracted rental units of our rental property management services grew from 50,000 in the third quarter of 2022 to 160,000 in the third quarter of this year. Many of the metrics above mentioned are derived from our emerging businesses. More importantly, The long-term driver behind our business development is a consistently enhanced understanding of the industry landscape. Rapid growth and scalable operations have provided us with a deeper understanding of the industry and the capabilities to execute on small-scale testing approaches to make rapid business interaction across our service ecosystem. The build-up of such systematic capabilities means knowing which metrics to use and how many parameters we should set in the business. Rather than how high the parameter is set, the deep dive and scale of our one-body business have accelerated our scientific management and competitiveness. It's the equivalent of taking 50% steps forward. However, with our emerging business, we have only just taken out first aid. It's crucial to note that while growth and building skills are best goals, they are not the sole objectives. We also deeply understand the importance of supporting the industry ecosystem. Platform-wise, while we have notably improve our efficiency and operational capabilities over the last two years. We need to be careful about past dependence. Building and maintaining synergistic relationships with all of our partners, whether they are brands, store owners, or developers, is of great importance to us. We will make an adjustment to our operational strategy to better improve store owners' endurance and engagement, refining our platform capabilities to empower them, and establishing store owner committees that ensure collaborative development and governance. We started Lin Jia and Baker driving by a wheel to make the industry better. And today, we need to adhere to and align with an understanding that in order to becoming an industry leader in advanced productivity, it's essential to bring unique value to the industry. We are not competing against existing service providers or business partners in the industry, but rather against low-quality supply that damages the industry reputation and diminishes customer experience. This is why we need to work hard to push for an overall improvement in the quality of the industry. Given our recent progress and the growing consumer demand for service and quality, we have seen tremendous promise. We also believe that one day we will proudly advocate for this industry. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our third quarter financials.
spk01: Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our performance, I would like to touch upon some updates on recent housing markets. The third quarter saw the property market picked up from the bottom with month-over-month sequential recovery. Important policy directives were made during the particular meeting in late July. Addressing new trends erodes the supply and demand. Since the end of August, a wave of supportive policies has been rolled out, with many cities taking steps to modify the criteria of first-time homebuyer qualifications, lower down payment ratios, cut market interest rates, and relax purchase restrictions. Market sentiment notably improved, with transactions substantially rebounding in September. This recovery was particularly pronounced for the existing housing market in first-tier and some strong second-tier cities, where expectations for policy relaxation and a demand for housing upgrades are the most substantial. The recovery of the new home market lags slightly behind existing homes due to the varying demand across cities and the volatility on developers' price side. Nevertheless, since August, there has been some improvement in the new home markets and the new home subscription data on Pry4 showed both year-over-year and month-over-month recovery in September. We have been proactively advancing our one-body, three-win growth strategy. In terms of our overall financial performance, in Q3, we maintained resilient top-line performance with total revenue growing 1.2% year-on-year, reaching RMB 17.8 billion, exceeding our guidance among which we achieved better than expected revenue for housing transaction services. We also made remarkable breakthroughs for our home renovation and furniture business, with revenue of which jumping 72.1% year-over-year to RMB 3.2 billion. Notably, our enhanced operational capability, coupled with our careful cost-discipline device in previous years, generates a gross margin of 27.4% for Q3, kicking up by 0.4 percentage points from the same period last year. With overall revenue at a level relatively consistent with the same period last year, our GAAP net income saw a 63.4% year-over-year increase, reaching RMB 1,170 million, while non-GAAP net income go by 14.4% to RMB 2,159 million. Non-GAAP net margin rose by 1.4 percentage point year-over-year to reach 12.1%, showing a stronger profitability. Looking at our home transaction services, in Q3, on national level, Both existing and new home market still decline quarter over quarter and year over year due to notable quarterly disparity in market dynamics compared to previous years. However, benefited from our enhanced operation efficiency, our GTV of existing homes only fell by 2.2% year over year, despite the higher base set by four state cities in the same period last year. Revenue from existing transaction services declined by 11.9% year-over-year to RMB 6.3 billion. The bigger contraction of instinct home revenue compared to that of GTV was primarily due to a lower contribution from the GTV sold by Lianjia Brand, which has a high monetization rate. Lianjia GTV fell by 13% year-on-year on a higher base set by four steer cities in the same period last year. while existing home GTV sold by collided agents increased by 8.1% year-over-year EQ3, and the revenue of which is recorded on a net basis, resulting in the gap between the gross rate of our revenue and GTV. Meanwhile, on September 26, Beijing Lianjia adjusted its commission rate with buyers and sellers, each paying 1% of the property total transaction volume. for about 12,000 ongoing transactions initiated before the adjustment came into effect, while refunding the differences resulting from the rate adjustment, adhering to our principle for putting customers first. The corresponding impact has already been reflected in our Q3 extreme home revenues. We firmly believe that, by sincerely serving our customers' best interest, we can earn long-term trust as they bring us lasting growth opportunities. Contribution margin for its in-home transaction services was at 48.7%, reflecting a year-over-year increase of 2.6 percentage points and a quarter-over-quarter increase of 3.1 percentage points. This is indicative of how our core streamlined cost structure has enabled us to achieve stronger profitability instead of year-on-year decline in revenue. Let's move to our new home business. The industry is undergoing a phase of reduced supply and continued risk mitigation, evidenced by a more than 30% year-over-year decline in sales from the top 100 developers in Q3. We have adopted an active strategy of expanding channel collaboration with developers and continue to improve our business ecosystem while strictly adhering to our risk control bottom line. As a result, our new home DTV decreased by 26.5% year-over-year, outperforming the overall market. The decline of 24.3% in new home revenue was smaller compared to GTV, owing to a slight increase in our monetization rate. Our new home business contribution margin grows slightly year-over-year to 25.1%, despite the decline in revenue, fully demonstrating our operational resilience. In Q3, The percentage of commission income from SOE developers remain at 46%. Projects with commission-in-advanced models contribute 54% of the total commissions collected, remaining at a high level. Regarding our emerging business, the revenue from our business excluding home transaction services grew by 112% year-over-year, with its percentage to total revenues rising to over 30% in Q3, compared with 15% in the same period last year. Our home renovation and furniture business has remained on a fast track. with robust growth momentum that was not resilient on the trend of housing transaction services. Contract sales reached RMB 3.3 billion in Q3, a year-over-year increase of 65.6%. With fast delivery and accelerated revenue recognition, revenue grew at a higher rate of 72.1% year-over-year, reaching RMB 3.2 billion, a quarter-over-quarter increase In Q3, Shanghai repossessed two months with revenue exceeding RMB 100 million, becoming the third city, following Beijing and Hangzhou, to achieve monthly revenue surpassing RMB 100 million. Other cities are also growing rapidly. Cities including Wuhan, Chengdu, and Guangzhou are achieving a quarter-over-quarter revenue growth of over 50% in Q3. Our customer acquisition capabilities continue to improve, with both Beijing and Shanghai achieving 53% conversion rate in the middle to high single-digit percentage. The percentage of contract sales contributed by our home transaction services continue to increase to about 45% of total GTV. The sales of decoration and home furniture increased by 93% to RMB 920 million, with a proportion of 28%. The contribution margin for home renovation and furniture business in Q3 remained at 29.1%. A further solidifying foundation in product design and SKU assembly is developing a positive cycle of profitability across the leading cities. Ten cities include Beijing, Shanghai, and Hangzhou realized a positive city-level profit in Q2 and Q3, consecutively. Among the top ten cities in terms of the contract sales, seven of them have a positive operating profit The breakthroughs we have made have given us greater confidence in our strategy. In October, we announced the proposed acquisition of iKongJian as the deal is subject to the customary closing conditions. This will strive to bring higher quality offerings to the residential industry. Include three, our net revenue from emerging and other services. increased by 200% and 2.7% year-over-year to RMB 2.4 billion, primarily propelled by the expansion of our rental property management services. Contribution margin remains stable at 25.3% year-over-year. The total of our store costs and other costs remain stable in Q3. Our gross profit grew by 2.6% year-over-year, reaching RMB 4.9 billion as a result of our increased operating leverage. Our gross margin ticked up to 27.4% compared with 27% in the same period last year. In terms of expense, year-over-year, our gap operating expenses for Q3 totaled RMB 4 billion, increasing 12% from the same period last year. Our non-gap operating expenses amounted to RMB 3.1 billion, up 14% year-over-year, primarily due to the structural impact of the increased proportion from new business, including home renovation and furniture. Looking at cost-over-cost performance, we have maintained effective cost control in our home construction services, not only with the RMB 32 million by that provision written back during Q3. providing us with an improved operational leverage. In terms of the profitability on the gap measures, our income from operations for Q3 was RMB $911 million, compared with RMB $1.2 billion in the same period last year. Our operating margin was at 5.1%, compared with 6.9% in the same period last year. Our non-gap income from operations was RMB 1,886 million, compared with RMB 2,108 million in the same period last year. Non-GAAP operating margin was 10.6%, compared with 12% same period last year. The dip was mainly due to our investment in new business, including home renovation and furniture, which was in run-up period. Our GAAP net income First quarter reached RMB 1,170 million, reflecting a significant growth of 63.4% year-over-year. Our non-GAAP net income increased by 14.4% year-over-year, reaching RMB 2,159 million. Non-GAAP net margin rose by 1.4 percentage points year-over-year to reach 12.1%. Now, let me highlight our cash flow and balance sheet metrics. Including customer deposit payable, we realized the net operating cash inflow of RMB 2,658 million in Q3. The new home cash collections surpassed the new home revenue for nine consecutive quarters, with the cash-to-income ratio further rising to 1.21. New home BSO for the first three quarters was 52 days, In Q3, we spent approximately $162 million in share repurchase and around $200 million in special cash dividends. On top of that, our total cash liquidity, which includes customer deposit payable, amounted to RMB 79.8 billion, up RMB 440 million from Q2. Over the recent period, supported by our solid cash results and prudent financial management, will demonstrate our commitment to efficient capital allocation and delivering returns to our investors through the active share buybacks and dividend repatriation. In September alone, our total stock repurchased amount over US$130 million. Since the initiation of our share repurchase program in September 2022, As of September this year, the total number of shares that we have cumulatively repurchased amounted about 3.91% of the company's total share prior to launch our program. Moreover, recently we have completed a special cash dividend distribution totaling around US$200 million. Looking at our guidance for the fourth quarter, We expect the total revenue to be between RMB 18 billion and 18.5 billion, representing an increase of approximately 7.5% to 10.5% from the same period of 2022. This forecast includes the potential impact of the real estate-related policies and the macroeconomic status that constitutes the current and preliminary view of our business and the market conditions, which are subject to change. The property market's transformation and upgrade towards living and the strength of our organization structure have all bolstered our aspirations and momentum for continuous growth. Our focus remains on expanding connections with top-tier industry capability and fostering a cooperative ecosystem of fairness and win-win scenarios. We are simultaneously developing a high-quality service provider talent pool and formally dedicating resources in infrastructure development. As we thrive in the vast residential sector, we are positioned to expand into the significant opportunities that lie ahead. Our ability to effectively balance scale, efficiency, and financial stability has been further validated during the market fluctuations over the past few years. Under this volatility, we also achieved consistent improvement in business growth, profitability, and cash flow. Looking forward, we will maintain our disciplined approach to financial management, further enhance our capital allocation efficiency, We will prioritize our investment in business areas that can bring key outputs and values, investing in growth, investing in future. We will also share the benefit of the development with our shareholders. We believe this will enable us to achieve organic and substantial growth, creating long-term value for our shareholders. This concludes our prepared remarks. Now, we are open for the questions Operator, please go ahead.
spk06: Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. As a reminder, we only accept questions on the English language line. For the benefit of all participants on today's call, please limit yourself to one question And if you have additional questions, please, you can re-enter the queue. If you're going to ask the question in Chinese, please follow with an English translation. Your first question comes from Timothy Zhao with Goldman Sachs. Please go ahead. 好的,感谢关于曾接受我的提问,那也非常恭喜三一度很强劲的业绩。
spk00: Thank you, Majun, for taking my question and congrats on the very strong result. Just one question. Could you provide us an overview of the housing transition market in the past quarter and what is our outlook for the fourth quarter this year? And after the mortgage easing policy announced in the third quarter, what is measurement observation in terms of the policy impact on home transactions? Thank you.
spk01: Thank you, Kim. Regarding your question, we noticed that the investors pay close attention to the market changes in property markets. I can share some of our perspectives. In terms of the policy, there has been relaxation or even removal of the restrictions on housing transactions in certain second-tier cities since the July Politburo meeting. From the end of August to early September, first-tier cities have implemented policies to recognize households with mortgage records but no local property ownership as first-time homebuyers. Additionally, Guangzhou, being the first among Tier 1 cities, has eased its home purchase restrictions in September. Moreover, mortgage rates for both first- and second-hand homes in the top 100 cities decreased by 25 and 34 basic points, respectively, year-over-year. In the third quarter, the existing home market improved from its June performance driven by the anticipation of supported policies to come and subsequent policy release. To elaborate this, the number of existing home transactions grow by single digits month over month in both July and August. This update shows that things are stabilizing and recovering due to the expectation for new policies. After relax, first-time home buyer qualification policy was implemented in September, our platform saw an upward surge in existing home sales, with a growth rate of 25% compared to previous month and 32% compared to last year. In particular, for the first-tier cities, the recovery actually started quite early, and they also rebounded the most in September. After the Politburo meeting at the end of July, this city has already seen certain market recovery expectations. The number of homes showing and listing increased by 5% to 10% from July to August, while transaction volume in September grew by over 30% month over month. Stronger second-tier cities like Nanjing, Hefei, Wuhan, and Hangzhou relaxed their home buying restrictions in September, led to a stronger recovery in transaction volume of 25% growth month over month. This also demonstrated the effectiveness of the policy measures. For home prices, according to data from Baker Research Institute, Beijing and Shanghai start to stabilize in July. And in September, they even increased by 1.6% and 1.9% respectively compared to July. While many other cities across the country still saw a decrease in their home prices the rate of decline has slowed down in September. The new home market in the third quarter of 2023 has also shown signs of rebound following the resurgence in existing home markets. A notable disparity was seen in both supply and demand side. Subscriptions for new homes experienced a more than double-digit month-over-month recovery in August. However, in September, the new home subscription volume on the Baker platform increased by more than 40% month-over-month and 15% year-over-year. This is a significant divergence from the historical month-over-month decline in September over the last three years. indicating that this September's rebound was largely driven by policy support and the input market sentiment rather than seasonality. Transaction data typically lags behind the subscription data by about three weeks. Accordingly, more positive change in transaction data is expected in October. A closer look indicates that the new home market displays a high degree of disparity. In September, year-over-year growth rate for new home subscriptions was through the roof in first-tier cities at 49%, pretty solid in stronger second-tier cities at 20%, but negative 18% for other low-tier cities. The demand for home upgrades is higher in first-tier cities, The first-time homebuyer qualification policy helped pump more liquidity into these respective new home markets and gave a big boost to those top-tier cities like Guangzhou, Nanjing, and Changsha that have stronger fundamentals. But when there is a purchase restriction in these leading cities, it also causes taking away some of the demand from neighboring low-tier cities. as new home sales must be being heavily influenced by the supply side, as it leads to significant fluctuations in high-frequency data, while the existing home market shows more consistency, making it a better indicator for overall market activities. Looking ahead, the positive effects of new policies will continue to unfold, the date of existing home transactions in October has been pretty consistent on a weekly basis. With the gradual increase, nevertheless, it is important to remember that it takes time for policies to be kicked in and for demands to turn into actual sales, usually spanning several months. The uncertainty in home price trends will make potential buyer cautious. and adopt a wait-and-see attitude. To keep up with and stimulate home buying and upgrading objectives and attract more buyers to the market, we need further policy support, stable housing price, and a property that matches the changing needs of consumers for better living conditions. Easing in purchase restrictions in different cities, along with the revised qualification for first-time home buyers, are expected to boost reasonable demand for first homes and further activate transactions in the market. Thank you.
spk06: Thank you. Your next question comes from John Lam with UBS. Please go ahead.
spk03: Thank you for the opportunity to ask me this question. Congratulations to the company for its excellent business performance in the fourth quarter. I have a question for you. About new houses, what is the sales strategy of Fangqi in the fourth quarter? How do they think about the collaboration and sale of this channel? In addition, the land and housing prices are separated. Will this be better for the new house business? Thank you for taking my question and also congrats for the great result. The question is more regarding on the new home business. So, how do we see the property developers for their sales strategy in the upcoming fourth quarter strong season? And also, how do they think about the cooperation with the channel? Regarding on the recent relaxation of the price cap for both property price and also the land price, would that mean that this is causative to your new home business? Regarding on the operation, Baker has been the industry leader for the new home business So any area for further improvement that could share to the investor. Thank you.
spk01: Thank you, John. The current new home market is complex and consistently changing, which poses significant challenges for everyone involved in the industry. Although new homes generally offer a better design and quality compared with existing ones, in cities where there are risks associated with delivery or sold home on time, consumers tend to lean towards buying existing homes. In key cities, the percentage of consumers interested in purchasing new homes has dropped from 33% in 2021 to 70% since September. In one of our core central cities, the proportion of transactions in existing homes has been rising from 25% in September 2021 to 70% this year. In cities like Chengdu, where a timely delivery of pre-sold homes is ensured more effectively, people still prefer buying new homes. However, a situation has emerged where prices of the new homes are significantly higher than those of the existing homes. This creates a large price gap. that handles new home upgrades or reduces developers' motivation to increase inventory and offer promotions. There are also cities where demand for new homes has considerably improved this year, such as Shenzhen. The weekly subscription volume of new homes in Shenzhen reached a record high by the end of September. However, a considerable proportion of this recently increased demand has already been met through the Thailand housing supply. In response to the market challenges, most big national and local developers are expected to really step up their sales game by the end of the year with more promotions. Along with policy support, on the other hand, some smaller local developers are taking it easy Starting in early September, following current policies, some developers have taken the initiative to start promoting their projects, but we don't expect them to primarily rely on the significant price reductions. In terms of the developers working with brokerage services, the penetration rate for brokerage market to the new home market has been on the rise this year. For instance, in Q3, the penetration rate of brokerage service in Shenzhen increased by 6% compared to the same period of last year, while Chengdu witnessed a growth of 10% to 15% year-over-year. Although developer sentiment may fluctuate due to the market change, a relatively stable and balanced cooperative relationship has been established. From Baker's perspective, our goal is to establish a mutually beneficial partnership with developers where we can collaboratively create additional value for customers. The low satisfaction level among customers regarding the new home product is one of the main reasons why the market lacks momentum. By getting deeper insight into the customer preference through interactive data analysis and extensive research, we can develop better products that cater to the new home housing upgrade needs, while also enhancing their overall experience. Recent projects like Chengdu One OTC Riverside, Wuhan Tianli, and Beijing One Signal Park demonstrate the high quality of new home products. still generate significant demand in today's market. This divergence indicates a clear direction for future development in the new home market. Additionally, if 1.0 flow area to land area ratio restriction is to be removed for largely populated area, it can really help boost the development of high quality, low density residential property in future housing market This will stimulate the improvement in demand and enable residents to experience a leap forward into a future healthy experience. Going forward, as we consolidate and deepen our fundamental work in core areas, such as commissioning the bonds, cooperation with state-owned developers, and focused sales strategies, we will prioritize enhancing our new home market coverage and sell-through to withstand potential market downturn risks. Our strategy will primarily cover the following. Number one, building new partnerships with developers. As developers move from local autonomy to centralized management, we will work closely with them at every level to establish deep and meaningful collaborations. Number two, We will tailor our strategy and policies to individual cities. Number three, refund operation management. We will beef up our infrastructure, starting with our housing dictionary, ecosystem, standardized process, and building the skill to make the product that the customer will love. Thank you.
spk06: Thank you. Your next question comes from Miranda Zhuong with Bank of America Securities. Please go ahead.
spk05: 感谢接受我的提问,然后恭喜强行的3G路的业绩。 那我的问题是这样的,就是说历史上我们看到公司在发展房地产交易业务的时候进行了一系列的并购。 那最近也有看到公司公告了对这个爱空间的这个收购来进步发展装修的业务。 Thank you. My question is, historically, we have seen MMA was used to grow a company's home brokerage business. and company recently also announced a proposal to acquire Kunjian Zhihui to further grow the home furnishing business. So can management share your thoughts about the importance of MMA versus organic growth in your growth strategy, and also your thoughts about the future investment and the pace of it? Thank you.
spk02: Okay, I'm standing. Thank you for the question. So generating sustainable internal innovation and organic growth is definitely a long-term goal for us. In the process of achieving this long-term goal, we have some phased strategy objectives that we need to achieve. To revolutionize the home innovation and the furnishing industry, we need to have ample skill and business density in a single city. This allows us to experiment, refine, and enhance our competencies promptly. Acquisitions are the most suitable route to achieve this short-term strategic opportunity. Hence, our emphasis on acquisitions isn't merely for immediate revenue or financial growth, but to attain the necessary scale and density as a fertile piece of land to foster industry innovation. It's very difficult to kick-start industry transformation without any existing skill. Many capabilities can only grow up with certain operational skill. But in the home renovation sector, that kind of skill has been pretty rare historically. Furthermore, the requirement for achieving a 30 billion or 15 billion skill in one city differ across various capabilities. is like evolution. We must remain agile and nonconformity to establish the norms. For example, with a strong presence in the city or region, we can establish the entire scale, supply chain, and delivery process, which allow us to tap into economical scale, addressing deeper root industry challenges, and propping away for our transformative business methodology. Looking ahead, if acquisition can help us more effectively achieve our first strategic objectives, then they are crucial and valuable. However, they are just a means to reach a grander vision, not an end goal. Right now, acquisitions brings in the necessary resource and like-minded individuals I think these are important assets for transforming the industry. That's my answer. Thank you.
spk06: Thank you. Your next question comes from Xiao Dan Zhong with CICC. Please go ahead. Hello, Mr. Guan. Thank you for accepting my question. My question is about our new business. 那我们看到公司过去在这个一赛道的标准化和数字化方面做出了许多的成绩, 那我们应该如何去理解加装业务的这个标准化和数字化, 那也想请管理层分享一下我们在这块的一个进展。 那我快速地翻译一下。 So the company has made remarkable progress in standardization and digitalization of your core business in the past years. So how should we think of it in terms of the emerging home renovation business? It would be great if you can share with us some of the milestones you have achieved. Thank you.
spk01: Thank you, Sophie. To start with, the home renovation supply chain is long and complicated. Not all stages can or should be standardized. We can break it down into three categories. Standardization, personalization, and the betweenness. Standardization is in act in pricing, custom practice, and the streamlined process of use. Personalization within this offering is emphasized by our tailored design solution and the rich variety of products that are offered. The degree of the standardization or personalization for renovation material lies somewhere in between these two rings. Material selection are based on stringent criteria while still providing our customers with humble diversity to make a personalized choice that makes their individual tastes. For areas that need standardization, we need to reshape the process and set standards. We will define the distinct roles within our operation flow, establishing a set of mechanisms for collaboration, task allocation, and gate incentives. For example, In terms of the role definition and fee settlement for renovation construction, it used to be common practice in the renovation industry for the project managers to bring their own team of workers and control the workshop, while the renovation company only dealt with payments with the project manager. This often resulted in the project manager starting off at a lost position when they took on the new project. This led to several issues. Their focus gets pulled into the actual charge and the tasks for more profits and the managed access labor schedule for other projects. Additionally, many renovation companies have limited expertise in managing workers and leading to the copy issues. On our platform, our project manager role is to ensure a project goes smoothly and the customers are happy. And they are not allowed to touch money. Their job is to manage project timelines, ensuring laborers are delivering quality, craftsmanship, and so on, all of which improve customer satisfaction. While the platform is responsible for dispatch orders, setting up standards and certifying workers' qualifications, implementing evaluation and the reward system, et cetera, and completes the salary settlement based on the performance system centered around the core services. As such, we redefine the roles, workflows, standards, and the incentive mechanism within the industry. Regarding the digitalization, it is essentially a manifestation of in-depth industrial understanding and serves as a means to facilitate the implementation of standardization. Here, let's take the example of project manager and the workers for illustration again. This part of the digitalization is now achieved through our Homestar system. This module covers various sub-modules such as project schedule management, material dispatching, and construction quality control. It enables automated assignment of tasks, tracking of the main material orders, acceptance inspections, gratification processes, etc., providing a streamlined management approach. Additionally, it encounters digital talent management for both workers and project managers, including scoring systems, performance incentives, training certification, and more. The HomeStart system will be upgraded to version 2.5 in November. This new version combines the industry expertise of both Chengdu and Beike, making it more compatible and inclusive of the various modules like construction delivery, customer acquisition, sales, centralized design control, supply chain delivery, improvement tools, and data strategy. Moving forward, our focus will be on developing the designer and the delivery middle office module, in order to standardize workflow process and achieve what you see is what you get design approach. This will also save designers time in reputable workers and improve our interaction with client design solutions, which they care more and more these days. Lastly, we want to reiterate that the core goal of the standardization and the systemization is to establish a customer-centric digital infrastructure that supports the industry's ongoing development. This infrastructure should be able to accommodate diverse industry players, allowing participants across the value chain to operate on the streamlined and well-structured guidelines. As we gain a deeper understanding of the industry through experiments and explorations in various cities, as well as the collision of ideas following the merger and acquisition. We will continue to rapidly iterate the process of standardization and digitalization. Thank you.
spk06: Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Siting Li, for closing remarks.
spk04: Thank you once again for joining us today. If you have any further questions, please feel free to contact Beka's investor relations team through the contact information provided on our website. This concludes today's call, and we look forward to speaking with you next quarter again. Thank you, and goodbye.
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