KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc's third quarter 2024 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 will now turn the call over to your host, Ms. Sitting Lee, IR Director of the company. Please go ahead, Sitting.

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings or Baker's Third Quarter 2024 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.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 well as we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of unnoticed gap financial information as well as unnoticed non-gap financial measures. Please refer to the company's press release, which contains a reconciliation of the unnoticed non-gap measures to comparable gap measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial resources. Neither the company nor any of its representatives has independently verified such data. which may involve a number of assumptions and limitations. And you are cautioned not to give undue weight to such information and estimation. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In 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 Third Quarter 2024 Earnings Conference Forum. In the third quarter, we continue demonstrating our dynamic and sustainable growth momentum. Despite challenges in the market, each of our business segments delivers solid results. GTV for our existing home transaction business reached RMB $477.8 billion in the third quarter, up 8.8% year-over-year. According to estimate from data disclosed by the housing bureaus and housing associations of the first tier cities, the total number of online registered transactions for existing homes grew by about 21% year-over-year in the third quarter, while the number on Baker platform soar by 44% year-over-year, for reference. For new home transactions, GTV on Baker platform increased by an impressive 18% to RMB $227.6 billion in the third quarter, while new home transaction GTV or CRIC top 100 developer declined 29% year-over-year. In the third quarter, of home renovation and furnishing and home rental services revenue grew year-over-year by around 33% and 118% respectively. At the end of Q3, a noticeable shift in policy also boosted a solid market rebound. In this market cycle, one thing we have become increasingly certain about is the importance of thinking long-term we are going to be deeply understanding the power of our long-term perspective. For our organization, survival and development are our core imperatives. Among this, our foremost priority is to survive, enduring and surviving. Therefore, our focus is not just on how to navigate next year, but on how to become a company that can survive for 30, 40, or even 100 years. The greatest of three to a company's longevity are rigidity, bureaucracy, and loss of vitality to grow and innovate. To treat less, a company needs two things. The first is integrity. Doing the right things and creating value for society. And second, creativity. Every step we take today is guided by these principles. Doing the right things, even if it's difficult, and fostering creativity. This is how we will become a company that extends the pace of time. Let me share how we are putting this vision into action. For any large The biggest rate is lack of growth. The proactive business growth strategy we put in place this year has yielded remarkable results. In terms of scale, at the end of the third quarter, we have increased the number of active stores on our platform by 14.6% year-over-year. with a net addition of almost 6,000 stores compared with the same period last year. We now have more than 46,800 Agile stores. The number of actual agents also grew to over 420,000, which means we added 24,000 agents since the third quarter of last year. Our strategic collaborations in the new in the new home market grows than all top tier developers. In August, the number of transactions from our strategic project developers accounted for 26% of our total new home transactions. We also made strides in improving store and platform operating efficiencies. In the third quarter, the average revenue per store on our platform, excluding Beijing, and Shanghai surpassed levels from the same period in previous years. The support ratio of platform staff to frontline agents also reached a record high. We also maintain robust risk control and strive for higher service quality. The right mechanisms are also crucial for fostering organizational creativity. In the third quarter, we officially established a small leadership committee as an innovative state toward rethinking large organizations' governance. It's a governance system that ensures forward thinking and a long-term outlook. After a year of trail implementation, the committee is now officially in place. It consists of the leaders of our main business lines as well as the heads of our finance and HR departments. Li Fengyan, Wang Yongquan, Xu Tao, and Zuo Donghua. The committee will report directly to me and is tasked with carefully considering and planning the company's key strategies and initiatives. Its goal is to ensure collaborative leadership, clear accountability, and continuous self-reflection by design. This model brings together diverse perspectives to help us make better decisions and strengthen our unity as a team. In the future, we will continue to refine and promote the innovation of our company's governance mechanism to further strengthen our leadership framework. In addition, we have officially appointed the CEOs of our new initiative businesses. Xu Wanggang, who had already been serving as the CEO of Bei Haojia, will now also lead our home renovation and furnishing business. Wang Yongqin will head for our home rental services business and also continue in his role as the COO of Lianjia. They will both report to me. These appointments reflect our commitment to tackling future challenges and our focus on aligning resources to achieve greater synergies across the group. With development over the past few years, our home renovation and furnishing and home rental services business have achieved several key milestones. In the first three quarters of this year alone, revenues from our home renovation and furnishing business surpassed RMB 10 billion across more than 45,000 projects. Revenue from our home rental services business approached RMB 10 billion during the first three quarters with the number of rental units managed under carefree exceeding 360,000. I'm truly grateful to our accident team for fostering these achievements. That is to say, we have more work to do. There are still many fundamental unresolved problems in the industry. We will iterate our scientific management and other capabilities to address the industry underlying issues related to quality and commitment among the others. We hope that when people talk about this industry and our brand in a few years, they will say, your quality is exceptional. Today, we are at a pivotal moment in this undertaking of the next two years we will strengthen our core capability to reach our vision. For our platform ecosystem, we are more committed than ever to working with store owners and store managers. They are the high-frequency players in this low-frequency industry. Our top priority is helping them achieve better returns. If they adopt a long-term mindset, our platform can achieve lasting growth. In the third quarter, we introduced new operational mechanisms to support this goal. We launched our StorePoints incentive program that rewards store owners for long-term platform loyalty, strong performance, integrity, and innovative business practices. This initiative is to significantly enhance store owners' satisfaction and allegiance to our platform. In Q3, We distributed around RMB 18 million in cash equivalent incentives to store owners in pilot cities. Take Shenzhen, one of our pilot cities as an example. Over the past two to three years, more than 1,000 new stores have joined our network in Shenzhen. While growing in scale, these new stores face three major challenges. insufficient emphasis on existing home transactions, slow progress in the new initiatives like home renovation and rentals, and weak collaboration across the platform with relatively high post-transaction customer complaint rates. We tailor specific incentives within the store point system to address these issues and motivate positive change Stores can now increase 20% extra bonus points for completing existing home listing transactions. They also receive two to three times bonus points for conducting non-housing transaction businesses. Stores are also awarded separate bonus points if they have been in our network for a long time and have a history of compliance and collaboration. Store owners can convert their points into additional benefits. In October, store owners in Shenzhen received a total of RMB 2.49 million equivalent incentives and 930,000 bigger coins, with top single store receiving RMB 210,000 equivalent incentives. Notably, the platform's profit sharing payouts to store owners boosted their income offsetting the cost of renting a storefront. At the same time, we effectively addressed the three core problems. Monthly existing home transactions began to recover and increase by 12% sequentially in September. Number of units leased out under kill-free range grew by 21% in Q3 compared with Q2. And across all existing home transactions reached 74.5% of total transactions are recorded high. Of course, this matrix only indicates short-term achievements. More importantly, our goal is to use the store membership point system to encourage store owners to think long-term, share value with them, and provide a clear development path on the platform, driving groups for both stores and the platform. Moving on to grant of Lianjia, we have continued to advance its tech law plan this year. Our decision to invest in Lianjia during tough market adjustments is also firmly rooted in our long-term vision. First, Lianjia is the cornerstone of our one-body-swing-win strategy. Maintaining Lianjia's solid fundamentals is crucial while we promote is pension based on sustainable operations and ongoing efficiency. Lianjia also need to lead the way in innovation and be the front runner in tackling industry changes. Reconstructing operational capabilities and advancing agents professional development. The number of Lianjia's actual agents grew by almost 30%. year-over-year, exceeding 110,000, the lianjia agent attrition rate in cities, excluding Beijing and Shanghai, dropped to 4.4% at the end of September, down 0.4 percentage points from 2023. In addition, we also continue to make headway in the large-store model, with the average number of agents per store across Lianjia nationwide climbing to 19.2. As of September, nearly 3,800 Lianjia Managed Naval Employees and above have trained in the Lianjia Large Store Leadership Development Program. To sustain creativity, we will constantly map out new opportunities and possibilities for the future. We cannot afford to wait until growth slows down to start innovating. Nor should we fall into complacency or simply defend what we have. Instead, we must plan ahead, remain open to embracing new ideas, and invest in long-term strategies. That saying, we won't make blind bets. Each segment in our industry is substantial. and entering any new venture requires an intensive decision-making process. Our approach includes extensive forethoughts, pilot trails, our dedicated teams, and deep engagement. Our thorough understanding is essential before taking any action. We don't rush. This is our underlying rationale for exploring Beihou's business opportunities. We are greatly encouraged by the central government's recent positive statements and a series of coordinated policy measures to support and stabilize the property market. Since the end of September, the market reaction has been strong and far-reaching. We are now seeing signs of market recovery with regards to both volume and prices. As we navigate through higher and lower We must remain calm at the peaks, stay fast at the truths, and grounded in reality in return. This is how we find true stability, with the broad environment improving. The truths we have learned during this period of market adjustment are clear. Steering committed to long-term maintaining optimism, fostering resilience and unity. This truth and the bold efforts we made in challenging times will enable us to go even further in a more favorable environment. Thank you. Next, I would like to turn the call over to our CFO, Juntao, to reveal our third quarter 2024 financials.

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our Q3 performance, I'd like to briefly touch on some updates in the housing market. The market's performance in Q3 was in line with our previous predictions. The market experience gradually retreated for the following post-like rebound fueled by intensive supportive policy release in May. Particularly in September, the year-over-year decline in market performance widened due to higher rates. the existing home market was relatively stable, with year-over-year increase in transaction volume. This was primarily attributable to home buyers' preference for the readily available existing homes. In comparison, the new home market was still in a butchering-out stage with weak supply and demand, as it would take time to resolve the real estate developer's debt risks. By end of September, There was an intensive array of real estate policies from the central and local authorities. This included lowering interest rates, reducing mortgage rates for existing homes, and aligning the minimum down payment ratio for the first-time and second-time home buyers. These policies further stimulated the housing demand, encouraging more people to enter the market. Other macroeconomic policies, such as monetary policies, indirectly fuel the market confidence, which stimulated the market activities. We are highly anticipating the market performance after the third quarter. Turning to our financial performance in Q3, our total DTV reached RMB 736.8 billion, up 12.5% year-over-year. Net revenue was RMB 22.6 billion, representing a year-over-year increase of 26.8%. Growth margin declined by 4.7 percentage points year-over-year to 22.7%. Gas net income reached RMB 1.2 billion, showing a year-over-year decrease of 0.2%. Non-gas net income reached RMB 1.8 billion, reflecting a year-over-year decrease of 17.5%. Non-GAAP net income exceeds market consensus. Moving to our home transaction services. Revenue from existing home transactions reached RMB 6.2 billion, down 1.4% year-over-year, and a 15.2% quarter-over quota. GTV was RMB 477.8 billion, up 8.8% year-over-year, and a down 16.3% quarter-over quota. Our GTV and revenue showed similar sequential declines, keeping our market decision rate relatively stable. Year-over-year, GTV growth surpassed the revenue, which was mainly due to the higher contribution from the GTV of existing home transactions facilitated by the Connect agents. The revenue was recorded on a net basis. The contribution margin from the existing home transaction services reached 41%. a decline of 7.7 percentage point year-over-year and a 6.5 percentage point quarter-over-quarter. This decrease was primarily due to the increased fixed labor cost related to increased number of agents and improved welfare of agents under the retreated market circumstance. In terms of the new home transaction services, although the market remains sluggish We significantly outperformed the market across all metrics. CRSC shows that the sales from the top 100 developers decreased by around 29% year-over-year and around 27% sequentially in Q3. In contrast, our new home GTV reached RMB 227.6 billion in Q3, up 18.4% year-over-year, while down 3.3% quarter-of-quarter. This remarkable performance, notably above the industry, was mainly compiled by deeper cooperation with developers and our refined operations that strengthened our capabilities. Revenue from new home transactions rose by 30.9% year-over-year to RMB 7.7 billion, but dropped around 2.6% from the previous quarter. Revenue outperformed GTV both year-over-year and sequentially. once again demonstrating our strong and steady monetization capability in new home transactions. The contribution margin from new home transaction services fell by 0.4 percentage points year-over-year to 24.8%, largely as a result of a strategic increase in variable commissions due to greater emphasis on building harmonious ecosystem and better rewards to our agents. Sequentially, the new home contribution margin declined by 0.3 percentage points due to the increase in the fixed labor costs. In Q3, the commission income percentage from SOE developers rose to 58%, and the proportion of the commission in advance projects maintained a relatively high level at 44%. Revenue from the home renovation and furnishing business. Home rental services. Emerging and other services grow by 54.3% year-over-year in Q3, accounting for a portion of our total revenue at 38.3%, with a record high, and surging by 6.8 percentage points from the same period of 2023. Our home renovation and furniture business maintain a steady growth. In Q3, contracted sales reached RMB 4.1 billion, up 24.6% year-over-year. Revenue amounted to RMB 4.2 billion, rising by 32.6% year-over-year. The revenue growth rate outpaced that of the contracting sales, mainly due to the higher delivery efficiency. The contribution margin for the home renovation and furniture business reached 31.2%, up 2.1 percentage point year-over-year, and relatively fried sequentially. This was primarily driven by gross margin improvement in our home renovation business. The contract sales of furniture and home furniture retail, which are outside of our home renovation package, reached approximately RMB 1.1 billion Q3, accounting for approximately 28.1% of the total contract sales, improving by 2.1 percentage points from the same period of 2023. Our home rental services business continued to grow at an accelerated pace. In Q3, its revenue reached RMB 3.9 billion, up 118.4% year-over-year, benefiting from the rapid growth in the number of rental units under management. By the end of Q3, the number of units managed by our home rental services exceeded 370,000 In particular, the number of the rental units managed under our carefree rent exceeded 360,000 compared with around 160,000 in the same period of last year. Its contribution margin was 4.4%, declined by 1.4 percentage points sequentially. This was mainly due to the higher commission expenses due to the seasonality. In Q3, Our net revenue from emerging and other services decreased by 21.5% year-over-year to RMB 487 million. Next, let's move on to our other costs and expenses in Q3. Our store costs and other costs remain generally stable year-over-year and culture-over-culture, at RMB 703 million and RMB 502 million, respectively. rose by 5.2% year-over-year to RMB 5.1 billion. Gross margin was 22.7%, down 4.7 percentage points year-over-year and 5.2 percentage points sequentially. The primary reason for the decline was the falling contribution margin of the using home transaction service, slated by the increased fixed labor costs. In Q3, our gap operating expenses were RMB 4.4 billion, up 11% year-over-year and down 2.1% sequentially. G&D expenses were relatively stable year-over-year at RMB 1.9 billion, while falling sequentially by 8.6%. This was mainly attributable to the reduction in the share-based compensation. Sales and marketing expenses grew by 18.6% year-over-year to RMB 1.9 billion, as we invest in the rapid expansion of our home renovation and furniture business, increasing associated sales and marketing expenses. Quota over quota, sales and marketing expenses rose by 2.8%, remaining largely stable. Our R&D expenses were R&D 573 million, rising by 21.5% year-over-year and 13.6% sequentially, primarily due to the increased R&D expense in our home, transaction services, and the higher expenses of exploration for some advanced R&D projects. In terms of the profitability, GAAP income from operations totals R&D 727 million in Q3, down 20.2% year-over-year, and 63.9% sequentially. GAAP operating margin was 3.2%. a decrease of 1.9 and 5.4 percentage points from the Q3 2023 and Q2 2024, respectively. Non-GAAP income from operations totaled RMB 1.4 billion, declining by 27.7% from the same period last year, under 51.5% cut-off quota. Non-GAAP operating margin reached 6%, down 4.6 and 6 percentage points from Q3 2023 and Q2 2024 respectively. The decline in operation margin was mainly due to the lower gross margin. Gap net income totalled RMB 1.2 billion in Q3, showing a year-over-year decrease of 0.2% while dropping by 38.5% quarter of quarter. Non-gap net income reached RMB 1.8 billion, down 17.5% year-over-year and 33.8% quarter-over-quarter. Moving to our cash flow and balance sheet, we realized the net operating cash inflow of RMB $449 million in Q3. The new home ESO was 47 days in Q3, which is a testament to our effective risk management. On top of approximately US$204 million allocated to the share we purchased during Q3, our total cash liquidity remains at a high level of RMB 76.3 billion, which excludes customer deposit payable. With our robust cash reserves, we continue to reward our shareholders who have grown with us through the active share buybacks. Enhancing capital operation efficiency, and sharing the benefits of our development with investors. At the end of Q3, we had repurchased around US$584 million worth of shares this year, which accounted for around 3.3% of the company's total share outstanding at the end of 2023. We have consistently delivered on our promise to reward shareholders Since the launch of our share repurchase program in September 2022, we have repurchased around US dollar 1.49 billion worth of shares at the end of Q3, which accounted for around 8.1% of the company's total share outstanding before the program began. As our business becomes more diverse and expands in scale, we have set higher requirements for the reasonable allocation of resources and financial prudence. Our financial strategy is to focus on the essence of the operation and support the growth of our one-body, three-winds business by strictly controlling our risk threshold and maintaining a healthy cash flow. For our housing transaction services, under the situation of our store-inspired strategy, we have implemented a comprehensive upgrade of the financial accounting model. Regarding our home renovation and furniture business, while upgrading our centralized purchasing module nationwide, we have further enhanced the level of automation in our business and financial process. As for our home rental services, with the continuous iteration of our business model and the rapid scale-up in the number of management properties, we continue to come through and update our business and financial process to facilitate business development. Regardless of how external environment changes, we will remain true to our original intentions, facilitating customers' better living, enabling service providers' bright prospects, promoting industries' advancement, and building harmonious ecosystems. We believe we will gain huge potential growth in vast markets and advance towards one-stop residential service platform. That concludes my prepared remarks for today. Operator, let's open for questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset, ask your question. As a reminder, we only accept questions on the English language line. For the benefit of all participants on the 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 the question in Chinese, please follow with an English translation. Your first question comes from John Lamb with UBS. Please go ahead.

Hello, I have a question about the recent real estate policy. I would like to ask the management team how they see this round of real estate policy different from the previous one. Now we see what the real-estate effect is like, including what the rest is like. If we see that the market is at the bottom, what kind of power do we need? So maybe I translate my question in English. So my question is more regarding on the recent property policy. So how does the management view about this policy versus in the past? And so far, how is the effect from the policy thing? How is the sustainability? And also, what kind of market forces is required in order to have a market stabilization? Thank you.

Thank you, John. In Q3, Oral market performance was muted. As a factor of the May 17 policy receding, coupled with low summer season, the existing home transition market shows a month-by-month decline in July, August, and September. For the new home market, the year-over-year decline in GDP of CRIC top 100 real estate developers also worsened month-by-month in Q3, even after seasonal improvement in the middle year. Since the launch of the policy package at the end of September, transaction volumes in existing and new home markets surged nationwide. Tier 1 cities laid this ground. Meanwhile, with huge transaction volumes, home prices also show signs of temporary stabilization. Overall, this round of policies has driven stronger market recovery than the last two previous rounds. on August 31st last year and May 17th this year. For details, this round of the policy exceeded the last two rounds in both scope and intensity. Unlike previous relaxation in either purchase restriction or mortgage condition, this round of policy introduced a whole package of the counter-cyclical policies directly initiated by the Politburo in response to new issues in the current market economy. Combined with greater credit support from the central bank and the SWIFT implementation of purchase restriction relaxation in Kirwan cities, it led to the market outperformance. In particular, the particular meeting explicitly emphasized the first time to stop decline of the real estate market. This work shows the country's commitment to stabilizing the housing market and leads to a stronger recovery in market expectations compared to previous two rounds. For the single market, following this round of policies, transaction volumes have increased significantly across first, second, and third tier cities. This contrasts with post-May 17 policy response. where the rebound was only in the fourth-tier cities. In October, the number of existing home transaction hour platforms marked the highest monthly level, rising by over 70% year-over-year, and 60% from September. Notably, the transaction volume in Kewang cities, so year-over-year, increased over 100%, with Shenzhen, up by over 250%. In October, Shenzhen average daily transaction volume reached the highest level in near four years. Year-over-year growth in Beijing and Shanghai was also more than 120%. For Tier 2 and Tier 3 cities, transaction volume saw a year-over-year growth of more than 60%. Regarding city home prices, a positive signal is that October so a month-by-month price stabilization with a slight 0.3% increase thanks to the surge in transit volume and improving market sentiment. This marks a notable improvement from the 2.1% decline in September and is the first increase since the beginning of 2023. Prices in Beijing, Shanghai, and Shenzhen were up 2.2%, 2% and 0.7% respectively, compared with September. This was mainly due to the fewer homeowners rushing to sell at a steep discount. This shift is reflected in the Baker Prospective Impacts, which tracks the percentage of the price increase in all price adjustments of listed homes on the Baker platform. After hovering below 10 since its rise early this year, The index recently recovered to 14. In tier 1 cities, it rose to 19, with Shenzhen jumping to 32, to a relatively active range. This shift indicates an incremental increase in the number of homeowners rising their home listing prices. Regarding the transit structure, The market was primarily led by home upgrades who had previously been viewing properties but were in a wait-and-see mood. According to Baker Research Institute's survey, after policy rollout, the proportion of consumers looking to buy a home quickly increased by 5 percentage points. In K1 cities, it scrolled from 17% to 31%. The proportion of wait-and-see consumers decreased Regarding the new home market, the latest round of policies also led to a rebound in the new home market. In October, the GDP of CRRC Top 100 developers increased by 73% from September and 7% from the same time last year. New home subscriptions on our Baker platform during National Day holiday nearly matched the subscription level for the entire month of September. New home experience of greater month by month rebound than existing homes. One reason is the lower base in September. The other reason is that the new policies mitigate the consumer's concern about the home delivery issues and developers active promotion during the national day holiday also help boost the new policies effectiveness and accelerate the sales through. Regarding the market outlook in the future, The latest round of POS has more enduring effects on housing market, giving it a wider scope and intensity compared to previous ones. It is worth noting that since October and through the first two weeks of November, the weekly existing home construction volumes on the platform have remained stable at a high level, demonstrating a strong short-term momentum. We expect the market to be relatively stable in the fourth quarter. For existing home prices, they are remaining stable in the short term, but their sustainability requires further observation. However, beyond the boost to the sentiment, the further recovery of the economic fundamentals is key to ensure the property market is bolting out. This relies on enhanced policy focused on the overall market economy improvement. On top of policy stimulating housing demand, the further rollout of the measures on the supply side, such as the support for developers and the inventory reduction, will help rebalance supply and demand in the new home market and revitalize the industry. Continued favorable policy for the real economy will also provide greater support for residents' income expectations and purchasing power. fundamentally stabilizing the growth of the market. Thank you.

Thank you. Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Great. Thank you, Benjamin, for taking my question. My question is regarding your home renovation and furnishing business. As we have seen signs of recovery in the home transactions in both existing home and new home markets in September, how should we think about the growth outlook for home renovation business? Could you share some recent progress on this business line, such as how you managed to improve the operating efficiency? Thank you.

Thank you, Timothy. In Q3, our home renovation and furniture business achieved a steady growth At full scale, our contracted sales reached RMB 4.1 billion, making a year-over-year increase around 25%, with revenue rising to RMB 4.2 billion, up 33% year-over-year. Our cities, such as Beijing, Guangzhou, Zhengzhou, and Nanchang, performed especially well, and each achieved over 50% year-over-year growth in contracted sales, As for the profitability, home renovation contribution margin reached 31.2% in Q3, showing an improvement compared to the same period last year. This is mainly due to the following factors. First, we focus on refund operation management. Since the home renovation construction involves lots of complex steps, we conduct a thorough review of each phase to identify key areas for the improvement. For example, when we notice excess materials, we quickly adjust our construction price and strengthen the internal control to minimize the material waste. We also continue to update our product package. During the initial design phase, we carefully analyze the cost and the construction standards for each type of product. running profitability model to ensure that each package maintains a reasonable gross margin during the initial development phase. Additionally, we increase the proportion of centralized purchasing. For products with a high degree of standardization, we scale up the centralized purchasing at the group level. The centralized procurement ratio for both maintained and supplementary materials reached over 30% in the third quarter, while it was over 20% in the second quarter. As our home renovation business has expanded rapidly, we not only increased purchase volume from existing products, but also renegotiated unit prices to reflect our large scale. While strengthening the profitability management, we also continuously focus on improving our operational process and models to enhance quality and boost customer satisfaction. For Timeline Management, we further shortened construction timelines by optimizing workflow and dispatch efficiency. This brought the combined timeline for basic construction and preliminary material to an average around 99.5 days in Q3, compared to 109.3 days in the same period last year. Regarding after-sales, while implementing proactive maintenance services, we expanded our in-house after-sales team nationwide. Our upsells team grew from over 200 people at the end of last year to over 500 at the end of September this year. This team remotely and carefully addressed customer repair requirements and further enhanced our customer satisfaction. In our home renovation-based model of quality, scale, and efficiency, college remains at the core. We will continue to iterate and invest in building our infrastructure and the capacity to strengthen quality foundation, which is essential to remain competitive in the future. Thank you.

Thank you. Your next question comes from Griffin Chan with Citi. Please go ahead.

Hello, I'm Griffin Chan from the Stock Exchange Research Department. So this is Griffin from Citi. I will translate my own questions. Baker has outperformed the market for both existing and new home business. Will the management have confidence in sustaining this outperformance? Besides, we know data has been actively expanding store this year. Will management please share your plan going forward? Thank you.

Thank you, Griffin. This year, we focused on e-gen and store-level expansion and ecosystem development. And the project is strengthening high-level collaborations with developers in new home business. These efforts have all paid off, enabling us to continuously outperform the market. Regarding scaling our platform, our agent and store network continued to respond. By end of Q3, the total number of acting non-lianjia stores on our platform was more than 41,000, and the number of acting non-lianjia agents was 315,000, up 16% and 4% year-over-year, respectively. We provided brands with fee discounts, installment plans, and other support to attract them to join our network. And in a volatile market, our platform's rich customer resources, extensive cooperation network, professional empowerment, and a diversified service such as new home and home renovation has a stronger appeal to store outside of network. Returns from our investment in store expansion have remained good. From the platform's perspective, by the end of September, newly-signed stores in Q1 this year had a positive ROI, with all regions covering their costs. As we made steady progress in connecting stores, we have further shifted our strategy into second half of this year from connecting small and scattered community stores to large stores. Accordingly, we raised the threshold of the average number of agents per store, performance requirements, and incentives. Our goal was to attract more college stores in the industry to join Baker to boost overall skill and efficiency. Regarding the store network operation, We adopted a more refined strategy at each individual business district level. For the areas fully covered by our network, we placed more emphasis on ecosystem optimization. We helped the store owner and agent retain more income through a series of platform benefits and supportive measures. Store productivity in these commercial areas was 1.2 times as high as other commercial areas. In areas where our store collaboration was insufficient, we focused on our target management and empowerment through the platform data analysis, problem diagnosis, and the strategy support aligned with the involvement of the store owner co-governance council. We promoted the focus on the colleague home listings, enhanced sell-through, and boosted cooperation among stores. In areas with insufficient network coverage, we actively connect to the new stores through various types of storage function packages. For existing stores, we piloted a points-based incentive system in Q3 to motivate stores to enhance efficiency and optimize our ecosystem. This system is essentially a membership program for the store owners through which the platform giving back returns as incentive to outstanding stores. This was aimed to achieving share value and win-win between the platform and stores. Among the nine pilot cities in Q3, the platform issued over 18 million yuan in equivalent cash benefit to store owners, with 30% of stores receiving this reward. The incentive system will bring more flexibility to our housing transaction business operation, while motivating store owners to engage more in our new business, including renovation and rentals. In our new home business, we continue to outperform the industry. In Q3, our new home GTV reached RMB227.6 billion, up 18.4% year-over-year, compared with 29% percent decline in the GTV of CERN development. Meanwhile, our multi-section rate continues to increase in Q3. The proportion of revenue from commissions in our new home This is also performance. Many companies continue to increase the number of corporate projects, which rates a high of over 8,000 in Q3. In September, the number of our corporate new projects accounted for 64% of all new home projects across cities where we operate, excluding Beijing and Shanghai, compared with 53% in the same period of last year. This was a result of growing recognition among developers for our sales capability, as well as a proactive effort to respond to collaborations. We continue to make the breakthrough in stretch collaboration. We have already covered seven out of the ten top developers. Strategic collaboration. differ from the past single-project cooperation, which typically features a competitive relationship between the two sides. In strategic collaboration, the two sides work as partners to enhance mutual understanding. We inform our cooperative partners of the operations and needs of our agents, market dynamics, and additional service, and value our platform efforts beyond the broken channel. Through the top-down promotions of such as running in real estate companies. We have to overcome difficulties in negotiation of city-level projects leading to more corporate projects. Through the strategic collaboration, we can also better protect agents' rights. For instance, we incorporate customer private phone number protection and equal protection period into the strategic collaboration framework. to promote the fair cooperation. Moreover, we enhance the business conduct governance to improve operational transparency, putting developers' minds at ease in their cooperation with us. Our stabilization and the resealables collection also motivate agents to work more actively on the new home sales, hosting our new home sales through. The agent's operational ecosystem has continued to improve. The penetration of the customer, probably from number, promote protection, goes to 16% in Q3, up by 8% from Q2, bringing more sense of security of agent, which also improves our willingness to sell the new home. Thank you.

Thank you. Your next question is from Thomas Chong with Jefferies. Please go ahead.

Thanks management for taking my question. My question is about our home rental business. As we see, our KFV rent is undergoing fast growth pace, while this business requires quite a lot of involvement in operation. Can management share about how we are different from others in terms of operations? Thank you.

Thank you, Thomas. In Q3, revenue from our home rental services reached RMB 3.94 billion, up 118.4% year-over-year. It's mainly due to the continuous increase in the number of the home units under our management. By end of Q3, we were managing over 360,000 units under our Carefree Rent module, compared to over 160,000 in Q3 last year. The contribution margin of our home rental services fell slightly quote-unquote in Q3 due to the seasonality. In the summer peak season of July and August, our Care Free Runs saw rapid growth in unit size and occupancy, which increased commission costs for the channel referrals and the related personnel, which impacts contribution margin. Excluding the seasonal impact, the core metrics of the Care Free Runs improved significantly year-over-year from January to September. Our operations focused on quality and efficiency have yielded good results. On improving services to customers, we provide pre-moving inspections, standardized handover services, and tenant-side property transfer services with a cumulative service count exceeding 970,000, providing a series of core interest and rights guarantees to our tenants. We centralized the management of the two types of property managers, tenant service manager and the property service manager, to realize the centralized empowerment and the standardized services. This has enhanced our post-lead service capabilities and quality while also leading to a continuous decrease in customer compliance rate. In terms of the operation efficiency, we continue to increase the percentage of the leads renewals which helps reduce the channel cost associated with re-renting and finding new tenants. We achieved this through improved post-lease services, leading to increased tenant satisfaction and user retention. At the same time, we actively engaged with tenants prior to lease expiration to discuss renewals, thereby boosting the renewal rate. At the end of Q3, The lease renewal rate was around 52%, compared to 48% in the same period last year. Regarding the management of rental costs due to the vacancies, we shortened the days needed to rent out the properties through the refined operations. The time required to rent out the property for the second time decreased to 7.5 days at the end of Q3, from 14.7 days at the beginning of the year. We also continue to optimize and upgrade our product module. The coverage of our new product module, which incurred no vacancy period, continued to rise in Q3. This model enhanced our resilience against the rental price volatility and reduced the vacancy costs. The deposit cost per unit of our new car-free rent product module also dropped. This was mainly due to the improvement in a successful rate of the first-time rentals, which rose to 82% at the end of Q3 from 76% in the same time of last year, driven by higher personnel productivity. We continue to build our own rental occupancy team, which enhanced the leasing efficiency while keeping overall cost lower than the channel cost. By the end of Q3, The rental occupancy contribution by this team was at 90%, up 5% from the same period last year. In addition, regarding Q3 operations, we took targeted measures to ensure the health and efficiency of our business in peak and light seasons, respectively. The specialization strategy for the service providers based on their roles significantly boosts our efficiency. leading to large-scale growth and an incremental profit margin. In the peak season of July-August, in particular, the personnel productivity of the unit since then and the occupancy improved notably year-over-year. Since entering the off-season in September, we have implemented multiple strategies, including strengthening the rental occupancy made through our self-built team and agents, and improving their productivity, using various marketing methods for the targeted customers, continuously managing lease renewals and second-time leasing pre-sales, and focusing on key areas of the housing unit sales and effectively managing inventory. Thank you.

Thank you. Your next question comes from Miranda Zhang with Bank of America Securities. Please go ahead.

然後我們對於這個備好家這塊業務整體上所考慮的商業模式是什麼樣子的? 謝謝。 Thank you for taking my question. My question is about 備好家. We see the news that 備好家 has successfully been aligned in Chengdu City. So can management share with us about the project and the rationale about it? And then what's the company's business model for the 備好家? Thank you.

My name is Miranda. Our new business, Bei Hao Jia, won a piece of land through the auction in Chengdu core area of Jingjiang district, financial city phase 3 in September. We undertook this project after carefully review and selection, and it will be operated by Bei Hao Jia team independently. We aim to use the pilot project like this to better validate our ability to implement our C2IM solutions at every stage, including the land auction, product positioning, design, and marketing. By creating model projects, we can build trust with future partners, such as developers, contractors, and property owners towards our business model and the product solution, ultimately helping us achieving a long-term life asset service platform model. But it is very clear that we do not intend to become a real estate developer. In terms of our long-term business model, we will not use our own capital for large-scale, heavy-asset investment. We positioned Beihoujia as a data-driven residential development service platform achieved through our one-plus-two business model. This includes C2M product solution supported by our accumulated user insight and big data, and complemented by efficient customer acquisition and marketing capability. This empowers our partners in that chain to create homes that are well-suited to customers. C2I will be our core capability. It leverages vast amounts of data and AI technology to ensure the customer preference and demand are reflected in the new home products, such as Possible. Regarding the commercialization, we will charge service fees for offering an integrated set of solutions, including product positioning, initial and in-depth design, rather than through the large-scale capital contribution or running investment returns. Lastly, we were fortunate to acquire the land on September 20, right before the government rolled out the subsequent bundle of favorable policies. This has made the land acquisition price highly competitive. We believe this project will serve as a testbed for our capabilities, allowing us to accumulate know-how to support the realization of our long-term platform model. Thank you.

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. Sitting Lee, for closing remarks.

Thank you once again for joining us today. If you have any further questions, please feel free to contact Becker'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 again next quarter. Thank you, and goodbye.