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spk00: Hello ladies and gentlemen. Thank you for standing by for KE Holdings Inc's first fourth quarter and fiscal year 2023 earnings conference call. Please note that today's call including the management's prepared remarks and question and answer session will all be in English. Simultaneous interpretation in 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 listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Siting Lee, IR Director of the company. Please go ahead, Siting.
spk03: Thank you, Operator. Good evening and good morning, everyone. Welcome to KE Holdings, Inc., or Baker's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today, and I posted on our company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Peng, our co-founder, chairman, and chief executive officer, and Mr. Tao 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 on unaudited GAAP financial information as well as unaudited non-GAAP financial measures. is referred to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. For today's call, management will use English as main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management statements in their 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.
spk06: Thank you, Siting. Hello, everyone. Thank you for joining Baker's Fourth Quarter and Fiscal Year 2023, Orleans Conference Call. 2023 was a fruitful year for Baker, not just in terms of business growth, but more importantly, in our organization's strengths, which foster our team's deeper sense of purpose and inspire great dedication in us to move forward and embrace more possibilities. Over the past few years, we have made a series of proactive adjustments in our strategy and business operations in the face of challenges. We are gearing up for crossing the next mountain to capitalize on the promising residential market with a technology-driven one-stop residential services platform for better living. These efforts have created more hope for our future. Skill-wise, a one-body business has substantially outperformed the market which our new initiatives have taken off. For profitability, a one-body business has reached historical highs and the new initiatives have seen significant improvement in cost. We have achieved breakthroughs in at least five cities in terms of an integrated one body to win business model with service consolidation and end-to-end experience optimization. More importantly, our organization gained unity and cohesion. The synergistic development in 2023 guided by the OneBody3Win strategy, has laid a solid foundation for our company. It has fostered a shared understanding within our organization. We are more certain of the path ahead, and our steps are firmer. Now, let's take a more detailed look at our performance in 2023. Overall, we achieved strong results. in a turbulent market for full year 2023, we recorded a GTV of RMB 3.14 trillion on our platform, up 20% year-over-year. GTV of existing home transactions grew by 29% year-over-year, which notable market penetration improvements in most of the cost studies. Full year GTV of new home transactions 7% year-over-year, significantly outperforming the market as compared with year-over-year decline of 6% in China total new home GTV, according to the MBS, and a decline of 18% in GTV on CERIC's top 100 developers. As for our new initiatives, Performa contracted sales of our home renovation and furnishing services soared over 93% year-over-year. The number of units managed by our big rental services surpassed 210,000. Our full-year total revenue increased by 28% year-over-year to RMB 77.8 billion. It's the second-highest level on the cost. which more than 20% attributable to our new initiatives. Regarding operating efficiency, we have been reducing costs and enhancing efficiency while controlling risks over the past two years. It did cost a lot of sacrifices internally. These efforts paid off in 2023. As evidenced by the record high profitability we set across, our existing and new home transaction sources, as well as for the group as a whole. We have also seen great improvements in our earnings quality and operation cash flow. Our achievements in 2023 have given us great safety margins and boosted our confidence. Next, we maintain our solid strides in our one-body business in 2023. with some proactive actions to drive growth in the second half. By the end of 2023, our platform served a total of 43,800 connected stores, which of 42,000 active stores, up 12% year-over-year. The number of agents connected on our platform was close to 428,000. And the number of active agents rose by 15% year-over-year to 397,000. Also, service providers on our platform achieved substantial improvements in efficiency and income, as well as a 44% of per-store revenue increase for Lianjia stores, excluding Beijing and Shanghai, and a 31% increase for Canadian stores on year-over-year basis. Moving to our new initiatives, at the heart of our achievements in scale this year, their progress reaffirms that we are headed in the right direction. We also get a clear picture of where we fall short and the vast potential for improvement in these sectors. Our home renovation and the furnishing services achieved great breakthroughs in 2023. Beyond the numbers, what matters most is that we get much deeper industry understanding and knowledge base. First, we developed a deep understanding of customer mindsets. Their happiness, pain points, and frustration deeply motivated us to iterate our business models in line with the customer perspective. Past industry priorities emphasize a good, centric installation process with logic similar to assembling a computer. Understanding our customers allows us to take initiatives from human perspective, evolving our business logic and restructuring processes based on real customer needs, thereby creating competitive barriers and stickiness. We also understand that a hunter-like sales model commonly used at the early development stage of low-frequency industries is not as sustainable. Only by keeping our roots in communities, winning long-term customer trust, customer recognition, and word-of-mouth reference can we increase the transaction frequency and the density. Now, turning to our big rental services, as it grew rapidly throughout 2023, new problems began to emerge at a faster pace, requiring a higher business activity and accelerated model integration. We were successful on both fronts. Our carefree rental model recorded over 200,000 manager units up from 77 in 2022. And our centralized long-term apartment rental services have been managed over 10,000 units by the end of 2023 from 5,000 in 2022. We are evaluating millions of rental orders on our platform every year from conventionally lower value added rental brokerage services to hire value-added long-term rental property management services. The core behind this is, first, our understanding to the added value, which our homeowners and tenants needs, and the ability to serve. Second, our ability to control risks, which requires high operation efficiency. In 2023, we upgraded rental products to enhance value proposition to homeowners and strengthening risk control, and we redefine the roles of our key service providers. All of these efforts have helped create a sustainable business model to emerge. Only by advancing our understanding of the fundamentals can we truly drive industry progress. For 2024, our goal is to achieve growth with stability. focus on quality and efficiency, and make decisions on long-termism. Striking a balance between business growth and risk control is a fundamental challenge for every organization. In our approach, we need to respect the law of the market in the same way farmers honor the law of nature. We also must protect our citizens from storms to ensure a fruitful harvest. Over the past two years, we focused on mitigating risks and reducing uncertainties amid external turbulence. This has significantly improved our safety margins and deepened our roles in the industry. On top of that, our future developments will come from innovation. As we face a different environment now with new challenges, we need to find new solutions. the first challenges lies in shifting our priorities. For a one-body business, skill and agents' income were once the most important factors. Now, efficiency and agent endurance have become more important. As knowing our aging resource allocation mechanism has helped us retain a large pool of talent, which formed our competitive adventures in the past. However, going forward, This advantage in scale may not be the key to help us meet customer demands or benefits any stakeholders. As our agents mature, their needs are also changed from high income to work-life balance. As we navigate these challenges, we have already seen our frontline teams taking steps ahead. Let me share a few examples. Our platform showcases many distinguished home brokerage brands large franchise brands like Fufang. They have expanded their store count from 100 to 1,000 within five years. Their strategy focuses on differentiated urban coverage and in-depth exploration in low tier market. Every aspect from store location selection and development planning to internal communication and team building follows a skillfully designed top-down approach. We are also honored to connect with our long-term franchise, like ,, real estate, who have achieved five-fold growth since in 2019. Defining the market trend, their growth strategy emphasized on collaborating with stores owners and agents with quality services and . Especially those having of rather hard times by efficiently leveraging brand resources. They are actually service model innovations. This is the first transaction under our model, helping customers lock in new homes before old homes were sold. On the storefront, we place a strong emphasis on the large store strategy, which demands excellent leadership and management skills from store operators taking our branch of in Shanghai. As an example, the store manager said clear plans for staffing and operations, making each core business line led by the agent top in the corresponding business to ensure robust and comprehensive customer services. During key services stage, such as face-to-face consultations with homeowners, the manager also helps the team to cultivate awareness of developing into homeowners' needs and developing a methodology with it to further strengthen the leadership skill of the store operators managing large stores. Lianjia has launched the Store Leadership Development Program SLDP this year, the three-year program aimed to resharp store managers' leadership model through operating planning, quality assurance, efficiency improvement, talent growth, team management, and so on. By setting up a comprehensive certification system linked to career development and aware incentives, SLDP aims to neutral versatile managers for the industry. On the agent side, Our dedicated agents have been instrumental in introducing numerous innovation initiatives to enhance service quality and efficiency. We always say closing a transaction is just the beginning of a service case. This is not just a slogan. Our agent from Shanghai, Zhu Peiling, set a good example. She delivered a special photo album for homeowners upon property handover. The album documented details of the apartment during this agent's housing maintenance period. Having homescape sellers keep a good memory of their past home inspired by Peilin's idea. We have introduced the Peilin album company-wide at Lianjia, honoring the handover of home with these precious memories. This example of our ongoing exploration of a new path for quality and efficiency grows with deepening our marketing presence. Going forward, the advancement and widespread adoption of technology may be the key. As such, in 2024, we need to open our minds in understanding the relationship between agents and technology, embrace and create changers. New media is another powerful force we want to better employ and leverage. Finally, business model innovation is another possible solution. In an effort to advance our one-stop residential services model for better living, we will explore initiatives such as membership systems and flagship stores. These mechanisms will foster deeper synergies under the OneBody3Win strategy, energizing our business holistically. Given that Beijing is our mothership and stands at the top of scale in many ways, we believe it boasts the best innovation ground and we plan to conduct more efficiency and model improvement trails there. For our emerging business, our main focus in 2024 is on quality. For home renovation and furnishing, the new The next step is to continually enhance our understanding of customer needs. This involves deepening our capabilities in quality products, process innovation, technology, and supply chain management, thereby cultivating customer trust and driving future business growth. For Baker Rental Services, there's a huge market demand. Operationally, we have established a solid foundation on our next stop Our next-stage strategy is clear. Enhancing efficiency through managing individual service capabilities varies. Improving occupancy rates and profitability and elevating service quality by various dedicated roles. What's more important for this business is to explore innovation models that balance risk and return better. Then we can replicate them look to long-term growth prospects while self-guiding our bottom line. In terms of technology, we have the strongest data assets and the richest offline scenarios in the living industry. Digitalization and technology hold the greatest potential to solve the long-term efficiency issues for agents. In 2024, we will further advance the digitalization across our business areas in the industry, conduct more in-depth exploration and practices around technology-driven initiatives. Regarding quality, for us, it sets the upper limits of how much we can be motivated by our customers and represents our business bottom line. In 2024, we are doubling down on quality exploring ways to enhance our ability to improve quality and create value through products, services, operations, and commitments. For example, we are innovating supervisory systems and products to remove barriers between customers and our platform, making sure we are always open to hearing from our customers. These quality-centric products and capabilities we present the real value to our customers and the business. Also, namely, long-term tourism capabilities lets the possible customer feedback to continually motivate us while turning customers' dissatisfaction into our driving force to improve and evolve our organization. That's the real power of focusing on quality. Lastly, we never stop thinking forward. If we could stand in 20 years behind and look back to today, what strategies might not work anymore? And what new ways will? Opening up our mind to reflect and address these core long-term issues is a major task for us in 2024. We are on solid ground with ample opportunities to make our mark in the vast residential sector backed by a team with unity and trust formed through battles fought together. Moving forward, we will continue to focus on the things at hand, encouraging, supporting, and learning from each other, and growing together by lending strength to one another. We are increasingly resembling an invincible team. 2024, is about welcoming new possibilities and challenges, each one guiding us toward more promising opportunities and helping us cross next mountain. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our first quarter and fiscal year 2023 financials. Thank you.
spk07: Thank you, Stanley. In 2023, The Chinese growth in the market deepened its transformation. The year started with a concentrated release of pent-up demand before moving to gradual normalization in the middle year. A transient rebound followed in the second half of 2023 due to intensive support policies. The existing and new home market shows a differentiating performance with later being affected by the risk associated with the real estate developer's debt and the limited effective supply. resulting in continued weakness in supply and demand. In contrast, both GFA and GTV of existing home transactions increased significantly year-over-year, showing home buyers' preference for readily available homes. This is an inevitable trend as China's real estate market approaches maturity. Houses are returning to their original purpose of providing a comfortable living environment bringing us closer to the vision of joint living. This is an evolving external environment. Our performance in 2023 demonstrated remarkable resilience, guided by our goal of achieving high quality growth. Our series of measures to reduce cost, enhance efficiency, and mitigate risk have brought us significant operating leverage. Our field revenue reached RMB 77.8 billion, up 28.2 percentage points year-over-year. Revenues from existing and new home transaction services go by 15.9% and 6% year-over-year, respectively. Our home transaction services maintain steady growth with a solid foundation. Revenue from our home renovation and furniture, emerging and other services, become a new engine of growth. contribute 24.7% of total in 2023, an increase of 11.7 percentage points from 2022. Specifically, revenue from the home renovation and furniture business was on the 10.9 billion, rising by 74.3% year-over-year on performance basis. Our profitability also increased substantially in 2023. Contribution margin go by 7.3% to 47.2% for the 18 home transaction services, and a 2.9 percentage point to 26.66% for the new home transaction services, both citing new historical highs. Our adjusted operating expense ratio dropped by 2.1 percentage points year-over-year, with an adjusted operating margin of 11.2% for the year. Our adjusted net margin increased by 7.9 percentage points to reach 12.6%, bringing our full-year adjusted net income to RMB 9.8 billion. Earnings caught improved meaningfully as well. We realized a net operating cash inflow of RMB 11.2 billion in 2023, 1.14 times of our adjusted net income for the year. by 50 days year-over-year to 55 days, we believe we have delivered commendable results in 2023. Turning to our performance in Q4, our top-line and bottom-line each grew by double digits on a year-over-year basis. This revenue for the quarter increased by 20.6% year-over-year to RMB 20.2 billion, beating the top range of our guidance. primary attributable to the better-than-expected performance for our new home transaction services, home renovation, and emergency services. Our gross margin reached 25.5% of 1 percentage point year-over-year. Our gap net income rose by 80.2% year-over-year to RMB 670 million, and our non-gap net income increased by 10.8% year-over-year to reach RMB 1.71 billion. For home transaction services, the fourth quarter witnessed a prolonged, the fourth quarter witnessed a pronounced contrast of performance between new and existing home market nationwide. So existing home market has seen a year-on-year increase driven by the lower base effect caused by year of 2022's pandemic. and increased activity in the existing home market in second and third-tier cities. Secretionally, the existing home market has been relatively stable since October, benefiting from favorable policies and increasing market maturity. Revenue from existing home transactions reached RMB 6 billion, up 14.6%, with GTV reaching RMB 468.1 billion, up 30.1%. both on a year-on-year basis. Notably, GTV sold by connected store shows even more robust growth at 41.1% year-over-year. Our strategic is functions through more connected store and the policy performance from the second tier cities and below in its new home market, fueled by the increased proportion of GTV sold by the connected stores. Meanwhile, this structure change contributed to a lower growth in revenue than GDP for in-home transaction services. The contribution margin for the in-home transaction services reached 44.5%, circling by 7.4 percentage points year-over-year, mainly attributable to the low base in the same period of 2022 when operations were nearly impossible because of the pandemic. The contribution margin filled by 4.1 percentage points quarter-over-quarter, primarily due to the actual bonus issued in Q4. In terms of new home transaction services, as I mentioned, the national new home market remained sluggish. CRRC shows the sales from the top 100 developers declined by 32% in Q4 year-over-year and increased by 12% quarter-over-quarter. The industry is still undergoing a process of supply construction and the risk being cleared. While maintaining our risk threshold, we proactively and strategically expand our channels. In Q4, our new home GTV reached RMB $238 billion, dropped by 9.7% year-over-year and grew 23.9% sequentially. Significantly, our performance market Revenue from the new home transaction was RMB 7.6 billion, down 8.5% year-over-year, and up 28.3% sequentially, outpacing GDP growth. This is a reflection of our steady market position capability in a market downturn. The contribution margin for new home transaction services slightly increased year-over-year, maintaining a high level of 26.4%. Our ability to grow contribution margin despite the decline in the revenue is another testament to our operational resilience. In Q4, the percentage of commission income from mySowie developers rose from 46% in Q3 to 53% in Q4. Projects with commission in advance model also remain at a high level, accounting for 53% of total commission revenue. We'd like to emphasize that We have never and will never compromise on risk control to our performance market. Revenue from home renovation and furniture, emerging and after services go by 106.6% year-over-year in Q4, accounting for an increased portion of our total revenue at 32.6%, significantly increased by 13.5 percentage points from the same period of 2022. Our home renovation and furniture business continued to grow at a fast pace, with further breakthroughs in both skill and efficiency. In Q4, contracted sales reached RMB 3.9 billion, up 99.7% year-over-year and 19.7% quarter-over-quarter. Revenue reached a new high of RMB 3.6 billion, increasing 73.9% year-over-year. The percentage of contracted sales contributed by our home transaction services continue to increase to about 47% of total GDP in Q4, further demonstrating the synergy between our housing transaction and other residential services. Moreover, our home renovation and furniture business has grown more diverse. With furniture and home furnishing, sales reached RMB 1.15 billion in Q4. accounting for around 29% of total contracted sales, making a 3.4% improvement from the same period of 2022. In Q4, our net revenue from emerging and other services increased by 169.3% year-over-year, and a 21.2% quarter-over-quarter to RMB 2.9 billion, primarily propelled by the reference function of our rental property management services. Our stock costs were RMB 727 million remaining overall stable in Q4 compared with the same period of 2022. Other costs rose subsequently to RMB 548 million year-over-year due to the increase of human resources related costs, maintenance costs of the rental property management services, and the share-based compensation expenses. As a result of our increased operating leverage, Our gross profit go by 25.7% year-over-year, reaching RMB 5.1 billion. Our gross margin ticked up 1 percentage point year-over-year to 25.5%, while falling by 1.9 percentage points, quote, unquote, due to a lower contribution margin of existing home construction and a smaller proportion of revenue from this business. In terms of expenses, Our gap operating expenses for Q4 totaled RMB 5.3 billion, up 43.5% year-over-year. Specifically, G&A expenses rose by 47.7% year-over-year to RMB 2.6 billion, mainly due to an increase in provision for buyback from one single developer for new home construction services and the increase in personnel costs. With regards to the new home receivable provisions, we have conducted a more cautious assessment of the realization value of the single collector assets provided by SUNAC early for its unpaid amount to BACO. This asset is expected to be impaired by over 50%. Based on this, in the fourth quarter, we made additional provision for BACO amounting to around RMB 400 million, which represents with over 50% provision on the receivables and other outstanding amounts corresponding to this collateral asset. As a result, apart from the selected portion of secured receivables, the average provision ratio for the bad guy related to receivables from 68 high-rate developers on our platform has exceeded 95%. Sales and market expenses grow by 56.1% year-over-year. to RMB 2.1 billion. The rapid developments of our full-service renovation business led to a fast, parallel increase in our sales marketing expenses. The increase was a result of the rising marketing expenses in our housing construction service business. R&D expenses go by 4.9% year-over-year to RMB 534 million, mainly due to the salary increase of the R&D personnel. On the profitability front, GAAP income from the operations amounted to a loss of RMB 173 million in Q4, compared with RMB 387 million from the same period of 2022. GAAP operation margin was negative 0.9%, compared with 2.3% from Q4 of 2022. Non-GAAP income from operations was RMB 856 million, compared with RMB 1.34 billion from the same period of 2022. Non-GAAP operating margin was 4.2%, compared with 8% from Q4 of 2022. The year-over-year reduction in operating margin was mainly due to a higher operating expenses ratio. In Q4, GAAP net income was RMB 670 million, up 80.2% year-over-year. Non-GAAP net income was RMB 1.71 billion, a year-over-year increase of 10.8%. Moving to cash flow and the balance sheet metrics, we realized a net operating cash inflow of RMB 1.77 billion Q4. New home DSO for Q4 was only 43 days, dropping below 50 days for the first time, just as a testament to our effective risk control. On top of the approximately US$173 million we spent on the share we purchased each quarter, Our total cash liquidity, which at school customers deposited payable, still amounted to RMB 79.1 billion, remaining at a high level. While achieving excellent results in 2023, we also placed great emphasis on shareholder returns. We spent approximately US$718.7 million in a strong buy-buy program and fully canceled all purchased shares. The total number of the repurchased shares accounted for around 3.7% of the company's total share before the start of the buyback program. We also initiated our first special cash dividend of around US$200 million during the year. On the basis of such positive shareholder returns, we would like to announce our first final cash dividend plan, which has been approved by the Board at US$0.11 seven per ordinary share, or US dollar 0.351 per ADS, to holders of ordinary shares and the holders of ADS of recorded as of April 4th, 2024, respectively. The amount paid for the final dividend will be approximately US dollar 400 million, which will be funded by our surplus cash on our balance sheet. As of the end, Our total shareholder return for 2023 significantly exceeded our net income, accounting for around 169% of our net income for the year. In addition, we are developing a long-term, proactive, stable total shareholder return plan, aiming to share the value we create with our long-term shareholders. In doing so, we aim to provide our shareholders with the certainty of returns in an uncertain, excellent environment. Market confidence has yet to recover in 2024. Despite market uncertainties, we remain undeterred and will continue to strive for excellence as our one-body, three-way business develops at a fast pace, gradually forming a positive cycle of skill, efficiency, and quality. While required to strengthen our financial presence, improve resources allocation, and refine our operations. So in terms of financial strategy, we will continue to enhance the financial infrastructure of each business and provide comprehensive support through our financial expertise. We remain on-going in efforts to prevent risks and establish regulations. For our new home transaction services, we will proactively control risks and strictly follow the developer ranking and accounts receivable management. Regarding to our new business, including home renovation and furnishing and the rental property management, as we see the rapid expansion, we will replicate our solid integrated business and the financial system, managing the capability from our primary business to the new business. This will improve financial process automation rates and bolster data analysis and processing the ability for those business lines. In addition to actively rewarding shareholders, we consistently prioritize the safety of our funds in cash management. We meticulously select underlying assets and establish clear investment strategy and the risk preference. Currently, the majority of our cash investments are in deposit-based products. Our excellent financial management capability will serve as a safeguard for the healthy growth of the organization, helping us to navigate through cyclical fluctuations and overcome challenges, enabling more organic and efficient business development. Furthermore, our proactive shareholder returns will allow long-term investors who have accompanied us on this journey to better share in the fruits of the company's growth.
spk02: Thank you.
spk00: If you wish to ask a question via the phone, you will need to press the star key followed by the number one on your telephone keypad. 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, you can re-enter the queue. If you're going to ask a question in Chinese, please follow it with an English translation. Your first question comes from Timothy Zhao with Goldman Sachs. Please go ahead.
spk09: Okay, thank you for accepting my question. My question is about home appliances. I noticed that the performance of home appliances has been very bright in the last two or three years. Could you please explain what the main factor behind this is? And could you please share some of the latest cloud data of our business? Thank you, Benjamin, for taking my question. My question is regarding the home renovation and furnishing business. I noticed that 2003, you had a very strong growth year in this business line. Can Benjamin further elaborate what is the driver behind and what are the key operating metrics that you are focusing on And in 2024, what is your key focus in the operation of this business? Thank you.
spk06: Thank you. I don't have any questions. I will answer your question. Yeah, we achieved big breakthrough in our home renovation and furnishing business in 2023. As for scale, our contract sales reached around the $30.3 billion. up 93% year-over-year among pro forma assets, with revenue growing by 74% to reach RMB 10.9 billion. As for profitability, we have 11 cities reported operating profits in 2023, with the four cities achieving operating profits over RMB 10 million. On the operations side, around 43% of the total contracted sales were attributable to customer referrals from real estate agents in 2023, a remarkable increase of 9.9 percentage points from 2022. Our product portfolio are also more diverse, with our contracted sales of furniture and home furnishings reaching about RMB 3.6 billion in 2023, accounting for 27% of total contracted sales, showing a 5.8 percentage point increase from 2022 on performance basis. These achievements were the results of improvements across our business operations. Our overall expansion was mainly driven by rapid expansion in core cities. In Beijing and Hangzhou, contract sales exceeded RMB 2 billion, and Shanghai exceeded RMB 1 billion. There were also six cities that have contracted sales over RMB 500 million. Our breakthrough in skills for the home renovation and the furnishing business with mining, I think it's due to three reasons. The first, high efficiency, high efficient synergies between our core and emerging business. The second is more diversity for our product portfolio and the higher delivery capability. Yeah, so the business outlook for 2024, we are two breakthroughs in scale in 2023. For our business to be successful and recognized by customers, the more important thing is customer buy-in. And the key to this, that is quality. So in 2024, while ensuring steady scale expansion, we have chosen quality as our keywords. High-quality delivery is a competitive divide in the home renovation industry. For now, we can provide the customer guarantee when facing problems. Going forward, we plan to take preventive measures to reduce problem frequency, finally offering customers a truly hassle-free experience and creating a positive cycle of quality. Right now, my problem regarding renovation is including construction delays and response slowness, and so on. We will take a series of measures to address these pain points in 2024. The first is shorting construction timeline by completing more steps simultaneously. The second is we will establish roles in charging of the quality control with online and web services to identify and resolve problems as early as possible. While enhancing quality, we aim to achieve further breakthroughs in the scale and operation model in 2024. Then we are replicating our model in more cities going forward. Yes, that's my answer to your question. Thank you.
spk00: Thank you. Your next question comes from Harry Chen with Citi. Please go ahead.
spk03: I think there's maybe a disconnection or something wrong with Harry's internet. Maybe we can go ahead to the next question.
spk00: Thank you, Harry. If you could re-register for a question. Your next question comes from John Lam with UBS. Please go ahead.
spk01: Thank you, Ms. Guan. I have a question about the Australian market. May I ask the company's performance in terms of the market penetration rate in the second-hand market in 2023? In terms of the second-hand business in 2024, what is the focus of the market penetration rate improvement? We also see that the company has a plan to further expand. Can you give more details about the policy of the company on intermediary brands and stores? Let me translate my question. So what was the bank's penetration rate in the existing home market for 2023? And also what is the overall focus for the company's existing home business for 2024 this year? I also noticed that the company's plan to expand the store network. Can you share more color on this? Can management also share some insights regarding this year's strategy for the connected brokerage brands and stores? Thank you.
spk07: Thank you, John. In 2003, we did quite well in the home business, achieving significant improvement in scale, efficiency, and profitability. In face of the steep market adjustment, we managed to retain quality service providers. That's been a big reason why we could jump on when the market rebounded at the beginning of last year. On top of that, we actively connect with more quality brands stores, and agents in the second half of last year, while refining our operations strategy and infrastructure for better efficiency. In 2023, our e-sink home GDP was up 29% year-over-year, and the revenue was up 16% simultaneously. We also significantly increased our market penetration in most cities, including Beijing, Shanghai, Nanjing, Hefei, Hangzhou, Jinan, Changsha, and Qingdao, so on and so forth. Specifically, we focus on a few key areas to boost our visiting home business. In 2023, we expand our store and agent network. By end of 2023, the total number of active stores on our platform reached over 42,000. just an increase of 12% year-over-year. The number of active agents on bigger platform was over 397,000, an increase of 14% year-over-year. And we also enhanced our operational efficiency through the following refund strategies. Like first, in the face of lots of new and previously inactive listings, we are developing the ability to identify the top listings. We aim to create a virtual cycle of securing high quality listings. By establishing efficient matching tools and the cooperation between the buyers and the sellers agent, ensure the quickly sells and achieving the high customer satisfaction, leading us to secure more high quality listings and boost our efficiency. And second, we adopt diverse online tools to optimize efficiency. For example, we introduce AI systems to help agents improve their responsive time to the client and their ability to accurately recommend the listing. As a result, the store and agent productivity on the Baker platform improved very well. In 2023, the average GTV per store increased by 29% and the GTV per agent was up by 25%. The average income per connect store increased by 31% year-over-year. And except our proprietary brand Lianjia in Beijing and Shanghai, the store trunk rate decreased by 34%, and the agent trunk rate decreased by 2% to 1%. Our focus in 2024 is on growth and ecosystem. Even with ongoing uncertainties in the market this year, on growing our business very confident. For growth, we see big opportunities to expand our network in many cities. In the year of 2023, we are expected to connect over 5,000 new stores in this year. In a few cities where we have the longer operations history, like Beijing, we have a attracted more customers and increased our market penetration since adjusting our commission rules last year. This year, we will expand our coverage for the first time home buyers in the city and also seeding the most starting point of the chain of the home upgrades. In addition, we will also continue to grow through the refund operations. We will transform our agents from just making sales to become experts who truly understood what the customer needs. We are looking to increase our presence on the customer side by exploring different channels to bring in more online traffic. For service providers, we are working hard to create a more harmonious ecosystem. We are moving from a strong focus on portability to providing more targeted support. This change aims to help less efficient stores start making deals and ensure higher productivity stores receive better returns. We will foster collaboration and share management with store owners, improving the operational environment for stores and also increasing their satisfaction with our platform. And also for our self-owned business Lianjia, in terms of the store's strategy, we will respond with a large store model. We'll also open some small stores in the key areas to increase our service coverage and to ensure our penetration in this whole spot. Simultaneously, for our Lianjia agent strategy, we have launched our soldier plan to bring back the former agents and open up to recruiting for the experienced agents from the industry to strengthen our Lianjia team. In 2024, we will focus on improving agent expertise through the training and talent nurturing, building a talent pool for our one-body, three-way business strategy. Thank you.
spk00: Thank you. Your next question comes from Griffin Chan with Citi. Please go ahead.
spk04: Thank you for giving me the opportunity to ask this question. First of all, congratulations to Guan Yicheng for achieving such an excellent performance in 2023 and being able to continue to repay our long-term shareholders. I would like to ask Guan Yicheng to share the overall trend of real estate in 2023 and the recent performance. At the same time, the performance of the stock market is clearly superior to that of the new market. Guan Yicheng, what do you think is the reason behind this? In 2024, will we continue to see new and second-hand market? congratulations first on the solid results and improving shareholders return so my question is that how do you view the overall real estate market in 2023 how did the market perform recently For the notable outperformance of the existing housing market compared to the new home market, how does the management think of the underlying reasons? And how is the trend expected for the new and existing housing market in the 2024? Will they continue to differentiate? Thank you.
spk07: Thank you, Guifei. Regarding the market situation in 2023, there was a lot of turbulence in the growth market. And overall, it is still in the middle of the deep adjustment. Here is what we observed. The market is shifting towards existing homes at a fast pace. Full-year existing home GDP nationwide rose by around 20% to 30% year-over-year. Official data showed that new homes accounted for nearly 40% of the full-year real estate transaction volume. This is a historical high. The new home market recovery fell short. According to official data, national new home sales declined by 6% year-over-year, while for the new home sales of the top 100 real estate developers dropped by 18% year-over-year. New home sales saw some mild recovery in the first quarter of last year, but then it dropped again and has been hovering there at a very low level ever since. Housing prices continue to adjust. First-tier cities' home prices saw a fast decline in the fourth quarter last year. But overall, first-tier cities' within-home prices were still higher than in the year of 2019. New home prices are stable on-home, primarily due to the structural shift towards the high-tier cities. The market supply and demand continue to evolve, leading to what we observe is a polarization of the market. For demand side, demand structure keeps changing. Demand for the home upgrades becomes dominant, making up 60% of total housing demand, with the first-time home buying demand at 30%, and the investment demand narrowing to around 10%. Consumers are more inclined to purchase these new homes. Our survey shows Customer preference for its new home purchase grew from 23% in June 2022 to 35% in December 2023, while interest in new homes dropped from 31% to 18% over the same time period. Basically, its new homes are meeting the rigid first home buying demand, and the people who want to upgrade their homes by selling one property to buy another also enter also enter into the existing home market first. For new homes, there is a lack of demand due to the location and projected reissue, as well as pre-sold model and the product design, which doesn't align with the current consumer's needs. Nevertheless, buyers are still interested in the properties located in scarce areas or with good designs. The demand for large-sized and higher-priced new homes are most stable. Overall, the demand is resilient, but it didn't translate into the transaction. There is still a wait-and-see momentum among home buyers. In 2023, the total number of clients viewing the properties exceeded the total number of newly listed properties on the Baker platform, indicating there is a number of people looking to buy homes. In cities where the solid foundation such as Shenzhen and Hangzhou, where opposite situation where there was a solid home purchase demand, but consumers are hesitant to enter into the market. With the market with abundant home listings or downtrending prices, there is need for the restored confidence among home buyers. Overall, in post-covid, home prices were lowered while people were still willing to make a transaction. indicating the resilience of the demand. Regarding the supply side, we noticed the investors are paying attention to the number of existing home listings, concerned about the high inventory. The number of existing home listings did reach an all-time high in 2023. It is a natural result of the growth of the existing home market. It also reflects the accelerated release home upgrades demand. under policy encouragement. In foster care cities, more than 70% of sellers were also the buyers. An increase in home listings is typically the early sign of the growth in demand. In addition, not all home listings are the real supply. Some homeowners lease their homes just for a give-it-try manner. Moreover, a portion of the old housing stock remains listed through the year with a very low liquidity. leading to a continued increase in the total volume of existing population. For new homes, there are still a mismatch between the supply and demand. New homes with prices lower than the neighboring existing homes in the core area of the top cities are still favored and contribute to the majority of the sales. But for new homes, supply in this key area are limited. The supply is more concentrated in the faraway suburbs where demand is weaker. So in high-tier cities, more demand was fulfilled by its in-home supply. The overall lack of demand for new homes also caused a prolonged inventory clearing period on the supply side. For recent market updates, the policies continue to support market stabilization. Recently, multiple cities have continued to optimize their policies in terms of purchase restriction loosening, like today's news for the Hangzhou city. And more financial support. The supply side, funding condition could improve, and the mortgage rate lowers down. Although the efforts of the policy booths sometimes are marginal in short term, the massive buildup of the easing policy since 2022 should bolster the relative stability of today's existing home market. For a think-home market, overall GDP of the think-home has been very stable since October 2023. During the Chinese New Year, average daily transaction volume of the think-home on our platform rose over by 70% year-over-year. For example, after the Spring Festival, in first-tier cities such as Shenzhen, the second-tier cities like Chengdu, Chongqing, Hefei, Gali, and Nanjing, the average think-home sales in the two weeks right after holiday exceeded the weekly average from December to January. This aligns with the historical trend, indicating that the existing home is operating relatively stable. On recent leading indicators, the daily average home showing under transaction volume is a parallel change during the transition year. Weekly average ratio of the showing change transactions performed better than the same period last year. The Baker Prosperity Index, based on the listing and price adjustment behavior of homeowners on our platform, has been bolting out at the beginning of the year with fluctuations. The Frontland Brocade Managers Conference Index has been steadily recovering since this February. In terms of the housing prices, The month-on-month decline in the in-home price index for the key 50 cities from January to February in 2014 continued to narrow to within 1% in February. The number of cities experiencing a decline in home prices also reduced. For the recent new home market, according to CRRC, the sales of the top 100 developers declined 49% year-over-year in January to February, with a 60% drop in February alone. The continued weak demand for the new homes has led to a low enthusiasm among developers to promote their projects. Looking ahead into 2024, the real estate market in second and in the third tier cities accelerates its transactions to existing homes. All existing home transaction volumes will get the momentum for a structured environment. Here, we believe using HomeGTV will remain relatively stable. As for new homes, demand remains the key, as the market will continue to fluctuate at its bottom zone. On the supply side, under uncertain environment, we believe developers will take active measures to adapt and focus on enhancing product accessibility and the sell-through. Thank you.
spk00: Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
spk05: Thanks, management, for taking my question. My question is about our housing rental business, which has experienced rapid growth in 2023. Could management team please provide more color on what we have accomplished in this business during the year, last year, and how are we managing the risk while expanding our scale? What is the development plan for the year 2024? Thank you. Yeah, thank you, Thomas.
spk07: Let me first summarize the business in 2023. Our goal is to provide homeowners with carefree rental services and reliable property management services. Also provide tenants with a safer and more reliable living experience. And 2023 was a key year for establishing our fundamental capabilities. We prudently expanded our operations scale with our decentralized rental management services. Carefree Ranch, growing from 70,000 units by the end of 2022 to over 200,000 units by the end of 2023. We also enhanced our access operation efficiency and rental service qualities. By the end of 2023, the occupation rate of Carefree Ranch increased by 6 percentage points compared to the year of 2022, reaching 95.1%. The increase in sales and lifetime rental property management operations placed a new demand on our operating capabilities. In 2003, we made the following iterations. Number one, we made a significant upgrade to our cafe-run business model, which greatly reduced seasonal fluctuations and the risks associated with the failure to release It also better resisted the risk of continued market downturn on rental prices. Number two, we implemented a refund operation by redefining core roles around the full cycle of rental management. Ensure proper staffing to smooth out our operation process. Number three, we comprehensively enhanced the service quality around the seven major pinpoints of the tenants. continually improving our standardized service capabilities. We enhanced our service team's response time, and they encourage preemptive problem solving. In addition, in 2003, our apartment business also responded in skill and efficiency, with more than 10,000 housing units under our management. For 2024, first, we have ambitious goals for the scale we manage. Our focus will be primarily these core cities. Beijing, Shanghai, and Chengdu will be the key targets for the major goals. Second, we aim to robustly establish our business at all levels, including achieving operational break-even in these core cities, and continuously improving overall operational efficiency and quality. This requires building and strengthening a range of capabilities. Improving efficiency, we are aiming for operational break-even in the leading cities, and we also target to increase the productivity. In 2023, the average productivity per manager has reached 100 units. In this year, we aim to reduce the capability variance and have more rental property managers achieve that level. In addition, we will also solidify the quality. First, we secure the safe blockchain line by identifying the potential risks in advance and establishing a mechanism for handling process. Second, we work on making our service both standardized and customized. We do this by clearly defining the distinct roles and enhancing our online capability to keep our rental service reliable and standardized. We also pay attention to the community demands and customer needs based on their demographics so we can offer them right-fit services. And we will also build the technology and service capability around the five key strategies. They are unit sign-ups, unit occupation, rental management, operations, and the reputation to make sure our business can achieve the sustained growth in the long term. Thank you.
spk00: Thank you. Your next question comes from Eddie Wang with Morgan Stanley. Please go ahead.
spk08: Hey, Stanley. Finally, I would like to ask about our strategy and vision for the new home business this year. I will translate it myself. Thank you, management, for taking my question. My question is regarding the new home business. So we have seen that our new home business has been significantly outperformed the industry performance. So what's the reason behind it? And considering that the sales of the new home has been more difficult going forward, do we expect the penetration rate of the brokerage channel to keep going up? And what's our strategy and outlook for the new home business in this year? Thank you.
spk07: Hi, Eddie. Thank you for your question. As you said, the China new home market faces big trends in the year of 2023. In such a tough market, We achieved around 7% growth in the full year of new home GTV, significantly outperforming the industry. Our operating metrics also reached historical highs. Throughout the year, we deepened our insight into the new home business as the market evolved, and our efforts in the operation and business management also paid off. the industry is still on a strong move shifting to a buyer's market. Consumers now need more professional services. In the past, with the home pricing was always going up, agents get used to just focusing on listing and then find the buyers. This approach is not effective anymore because there is a lack of understanding and insight into the customer needs. To boost the sales conversion, It's the key for agents to think from the buyer's side, identify who is buying the new homes and what they are after. Meanwhile, on the developer side, with the weak demand, traditional promotional methods such as the price cards are not working anymore. Developers have a stronger need for the services. In the 28 key cities we monitor, the proportion of the projects that developers choose to cooperate with brokerage sales channel reached 82% at the second half of 2023. This is an increase of 11 percentage points compared to the first half of last year. In this context, and in line with our group strategy adjustment, last year we have shifted our new home strategy from defensive to proactive manner with a focus on growth and its quality. We deepened our online consumer coverage and insights, and established a better online presence with initiatives like the live streaming for quality homes. Based on our consumer insights, accumulated user data, and a close connection with existing home customers, in the second half of 2023, we started to build new type of partnership with developers. We introduced innovative services of marketing and sales This helped boost our coverage of the high-quality new home projects. In 2023, our new home cooperation project coverage ratio increased significantly to 51% in Q4, up by 10 percentage points from Q1 in the same year. We remain committed to strengthening our ecosystem development. In 2023, more than 6,500 new projects have been covered by the commitment with both developers and the platform to transparent operations. Over 3,500 cooperating new home projects have embraced the private phone number protection services. On our financial management in the first half of 2023, our focus on the risk control and the profitability as core KPIs. strictly manage receivable collection and financial safety. In the second half of 2023, while maintaining a strict risk baseline, we specifically emphasized the Commission-in-Advanced Model and the collection management for the high-risk developers. Thanks to these efforts, our new home BSO shortened to only 43 days in Q4. Commission-in-Advanced Model accounted for 53% of total new home revenue The percentage of commission income from SOE developers reached at 43% level. Our new home commission rate in the fourth quarter also increased modestly. Based on our outlook regarding the new home market in 2024, we will take the following steps to improve the operations. Number one, on the supply side, we will further promote new strategy collaborations with high-quality developers. to secure higher quality new home supply for our channel services. On sales side, we aim to empower our service providers and boost their productivity and job satisfaction. We will properly raise the commissions rate for downstream brokers. We will also enhance operations for our external new home sales channel and optimize our product offer to brokers. And number three, will also strengthen our infrastructure, including our new home housing dictionaries, ecosystems, and online new home content development. Given our richer and higher quality new home listings, deeper customer understanding, and stronger sales capabilities, we believe our new home business will consistently up from the market. Thank you.
spk00: We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Siting Lee, for closing remarks.
spk03: Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact FACON'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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