KE Holdings Inc

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.

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.

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.