KE Holdings Inc

Hello ladies and gentlemen. Thank you for standing by for KE Holdings Inc's fourth quarter and fiscal year 2024 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'll 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 K.E. Holdings, Inc. or Baker's fourth quarter and fiscal year 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 we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of unnoticed GAAP financial information, as well as unnoticed non-GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unnoticed non-GAAP measures to comparable GAAP 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 sources. 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 estimates. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management statements in 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, Christine. Hello, everyone. Thank you for joining Baker's first quarter and fiscal year 2024 release conference call. Over the past year, China's real estate industry has matured fast. We have seen accelerated changes. Some changes are abrupt. For the past 30 years, The decision-making process for buying a home was relatively simple, and the risks of making the wrong decisions were low. The main concerns for buyers were speed. When a home became available, the question was simple whether they could secure it. In this kind of market, brokerage companies go by scaling up because The larger the network, the easier it was to access information, connect buyers and sellers, and close deals. Buyers didn't worry much about who they were buying from. Getting the home was what matters. But now that home prices are no longer on a one-way upward trajectory, there is more uncertainty in customer decision-making. and the costs of making the wrong decision are much higher. Because of this, buyers' needs have changed. First, they want to minimize the risk of buying a home and see greater certainty in their purchasing decisions. Second, they prioritize living well, a subject's experience and a feeling. That's harder to capture and measure. Everyone is looking for the best possible solution. Our job, first and foremost, is to build the capability to reduce customer decision-making risks and help them find the best option. This is also how we see AI technology, both in terms of its potential and how we apply it. Whether though AI or other tools, our goal is to help customers make the base decisions and guiding them to address various life challenges through better living solutions. Second, from the service provider's standpoint, a lot of the experience and knowledge they have built up in the past no longer applies. Consumers are asking us more questions and their concerns are more complex. They also care more about who they are buying through how knowledgeable they are, and whether or not they are reliable industry professionals. Service providers must be able to address these issues for their customers. The old approach of merely pushing listings to sell home is no longer viable. Our assessments on the industry is that customers will become more selective about who they work with. Top care agents will increasingly replace low-performing ones. And technology will give the best services providers an even greater edge, accelerating industry changes. These three forces will reshape the market faster than ever. Top tier services providers will reap the rewards of great brand premium and increased efficiency gains. At the same time, the industry will invest more in those service providers to ramp up their skills. The future isn't about relying on past experiences. The growth potential of the industry lies in the new paradigm. enhancing service quality, and empowering top-performing agents. This presents both an opportunity and a new demand for the platform, requiring us to more effectively support service providers and store owners in improving efficiency. Over the past years, we have achieved skill and made efforts to improve efficiency. On one hand, We are strong in our scientific management approach. We set clear goals, break them down into precise steps, and focus on key factors that are driving results. We have embedded this in our system and use digital tools to streamline management and boost efficiency. Now, we need to bring these capabilities to store owners and our new businesses. On the other hand, while the industry's digitalization still has a long way to go, breakthroughs in AI technology have opened up exciting possibilities. We now see future potential to reshape service providers' capabilities, enhance the customer experience, and significantly improve our platformer's operational efficiency. In 2024, we launched an active platform growth strategy. As a result, the number of active stores grew by 80.3% year-over-year, reaching nearly 49,700. Our aging count rose to 445,000, increasing 12.1% year-over-year. Despite major fluctuations in the real estate market, the number of stores and agents connected to our platform both reached record highs in 2024, allowing us to reach more customers than ever before. In 2024, we served 8.6 million customers. That means, on average, every hour of the year, Approximately 1,000 families across the country both rented or renovated a property with our help. Helping Chinese people to live well is a mission that truly matters. For the full year, our GTV total RMB 3.35 trillion. Total revenue hits a record high of RMB 93.5 billion, growing over 20% year-over-year. Notably, our existing home transactions businesses also reached an all-time high, with GTV rising nearly 11% year-over-year to RMB's 2.25 trillion. Meanwhile, despite market adjustments backed by strong trust from developers and customers, our new home transaction business generated RMB $917 billion in GTV for the year, down just 3.3% year-over-year, while total revenue grew by 10% year-over-year. A one-body, three-winds strategy has achieved enduring success for our home renovation and furnishing businesses. We continue to pursue scale growth in 2024 while establishing a positive cycle of scale, quality, and efficiency in Beijing. We completed renovation services for nearly 60,000 homes across more than 40 cities nationwide in 2024, connected with over 70,000 home renovation workers, 8,000 designers, and 5,000 project managers. Our home renovation and furnishing business achieved total revenue, or RMB, 40.8 billion for the year, a year-over-year increase of 36%. By enhancing supply chain fulfillment management and improving our system's order dispatch capabilities, In Q4, we successfully reduced the home renovation construction timeline by over 10 days compared with last year. Additionally, our enhanced in-house after-sales maintenance capabilities enable us to continuously elevate customer experience. In our home rental services, the number of rental units under management surpassed 430,000 in 2024, our revenue surged by 135% year-over-year to RMB 40.3 billion. In terms of quality and efficiency, we have improved the endurance of property owners and tenants by reshaping roles and responsibilities through refined operations, We saw significant improvements across various efficiency metrics, including the efficiency of second-time rentals and the average number of rental units manager per property manager. Regarding our business, we acquired land in several cities last year. We do not intend to become developers and build many houses ourselves. Our business logic aligns closely with our insights about the industry. By exploring this business, we aim to address the high decision-making risks faced by both developers and customers during the home-buying process, while meeting customers' demands for living well. We are committed to promoting the development of major high-quality homes within China's residential industry while mitigating critical level risks for developers and other participants in the industry. This requires us to build capabilities in areas such as precise customer demand insights, deeper user engagement, and data-driven decision-making. For instance, By aggregating characteristics and needs for home-sinking customers, we provide developers with targeted customer demand, enabling them to tailor their offerings accordingly and apply C2M customization. We will also set limits on heavy asset investment and gradually shift our business model towards a more ideal platform-based light assets model. In November last year, we successfully launched our product solution services project in Xi'an, the first case in which we generated service revenue through our product solution services. In 2024, we have also made substantial efforts in improving our relationships with the various partners throughout the entire ecosystems. I believe these efforts we lay a solid foundation for our long-term success. Looking ahead, we need to be more technology-driven and more human-centric. On the technology side, the rapid advancement of technologies, particularly AI, is set to transform many aspects of work, study, and daily life, including reshaping relationships with others, altering organizational structures, and changing hiring philosophies, all of which may undergo transformations. As interactions between people become more increasingly valuable, the essence of genuine services in bordering the answers of I understand you will become even more crucial. Addressing the industry's current pain points such as the shifting needs of customers for residential services, heightened decision-making uncertainty, and increased expectations for service providers' capabilities. We firmly believe that advancements in AI and other technologies will effectively help us tackle these challenges. With these tools, we will be better equipped to understand customers' personalized needs, broaden the knowledge and information available to individuals, and comprehensively enhance our service quality. We will apply AI more intensively across both external and internal operations, supporting services providers in achieving high-quality interactions. This approach will enable us to deliver genuine services while also upgrading the interface through which we provide such services. On the humanistic side, we recognize that we operate within a service industry where the value of empathy, customer care, and our commitment to services are paramount. While technology can facilitate these values, it is essential that each service provider actually embodies the spirit of self-reliance self-improvement, and self-respect by providing exemplary support to frontline agents who, in turn, take excellent care of customers. We can affirm our self-worth through customer satisfaction and recognition of their needs. The virtual cycle translates into priorities that are not only ethical, but also creative. This humanistic quality will offer a new dimension to industry evolution and development, making it possible to elevate consumer experience to 10 times better, increase service providers' efficiency 10 times further, and enhance the value created by our platform 10 times greater. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our fourth quarter and fiscal year 2024 financials.

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our Q4 performance, I'd like to briefly touch on some updates for the housing market in the past year. In 2024, although the annual transaction volume of the new home sales market was estimated to have declined by around 18%, The Chinese real estate market witnessed a significant recovery in the first quarter, following the stimulus practice policies in September. According to the National Bureau of Statistics, new home sales rose by nearly 30% quarter-over-quarter and achieved a 4% year-on-year growth in the first quarter. Meanwhile, the existing home, 7th Street, home buyers' preference, which is the proportion in total real estate market transactions, continues to rise. thanks to a readily available feature, as well as flexible supply and price adjustment mechanisms. According to Baker Research Institute, the proportion of the stay-at-home GTV in total market GTV has risen from 40% in 2023 to 46% in 2024. Following an increase of nearly 40% year-over-year in 2023, and the number of transactions in the stay-at-home sales market further grow by more than 10% in 2024. Although the national transaction price of existing homes still declined year-on-year in 2024, the price rose by only 0.2% sequentially in first quarter, indicating a changing trend. With the support of the policy aimed at stabilizing the market, home upgrade demands have become stronger. For solid existing homes, the average area and the proportion of homes with three-by-room and above. Both have increased year-on-year in key cities. The opportunities in the market and the bigger positive long-term growth strategy enabled us to continue making the breakthroughs in scale in 2024. Our full-year revenue reached RMB 93.5 billion of 20.2% year-over-year. Revenue from existing and new home transaction services both grow year-over-year, reflecting our home transaction service solid fundamentals. Our home renovation and furniture, home rental services, emerging and other services act as a new growth engine, with combined revenue rising by 64.2% year-over-year, contributing 33.8% of our total revenue in 2024, up 9.1 percentage points from 2023. In particular, Revenue from the renovation and furniture business was RMB 14.8 billion, growing by 36.1% year-over-year. And the revenue from our home rental services reached RMB 14.3 billion, up 135% year-over-year. While achieving breakthroughs in scale, we also continuously increase our investment in improving the service quality, infrastructure, and researching and developing advanced technologies. We believe these efforts will lay a solid foundation for our long-term development and continue to yield returns going forward. In 2024, our gross margin was 24.6%, and our adjusted operating expense ratio was 70.7%, with an adjusted operating margin of 7.4% for the year. Our adjusted net margin reached 7.7%, bringing our full-year adjusted net income to RMB 7.21 billion. Earnings quality improves as well. Our net operating cash inflow in 2024 was RMB 9.4 billion, 1.3 times of our adjusted net income for the year, and the DSO filled by three days, year-over-year to 42 days. Turning to our financial performance in Q4, our total GTV was RMB 1,143.8 billion, representing a year-over-year increase of 55.5%. Net revenue reached RMB 31.1 billion, up 54.1% year-over-year. Growth margin declined by 2.4 percentage points year-over-year to 23%. Gas net income was RMB 578 million, showing a year-over-year decrease of 13.8%. Net gas net income reached RMB 1.34 billion, reflecting a year-over-year decrease of 21.6%. Looking at our housing transaction services, revenue from in-home transactions reached RMB 8.9 billion in Q4, up 47.5% year-over-year and 43.5% quarter-to-quarter. GTV was RMB 744.8 billion, rising by 59.1% year-over-year. and 55.9% quarter-over-quarter. PTV growth surpassed revenue year-over-year, largely as a result of downsizing of value-added services for the homeowners. PTV outperformed revenue sequentially, mainly due to the structural change, that is, the revenue share of the rental booking service declined due to the seasonality. The contribution margin from both in-state home transaction services was 40.4% in Q4. representing a decline of 4.1 percentage points year-over-year, primarily due to the increased labor costs related to our effort to improve agents' welfare and a decline of 0.6 percentage points culture-over-culture, mainly resulting from the strategic initiatives that increase agents' incentive and variable costs. In terms of the new home transaction services, we significantly outperformed the market across various metrics, CRC shows that the sales from the top 100 developers were relatively stable year-over-year and increased by around 60% sequentially in Q4. In comparison, our new home GTV reached RMB $355.3 billion in Q4, up 49.3% year-over-year, and a 56.2% quote-of-quote, consistently and significantly outperforming the industry. This was mainly due to the deepening of our collaboration with developers, as well as our robust and fine-tuned operational capability. Revenue from new home transactions was R&D 13.1 billion Q4, rising by 72.7% ELVA and 69.2% from the previous quarter. Revenue outperformed GTV both ELVA and sequentially. Once again, demonstrating our strong and steady monetization capabilities in new home transactions. The contribution margin from the new home transaction services fell by 0.8 percentage points year-over-year to 25.6%, largely resulting from the strategic increase in variable commissions as we placed a greater emphasis on building a harmonious ecosystem and delivering better rewards to the agent. Sequentially, the new home contribution margin go by 0.9 percentage points. Thanks to leverage, we gain from the revenue growth. In Q4, SOE developers contribute 58% of our new home sales revenue. Revenue from the home renovation and the furniture. Home rental services, emerging and other services, go by 38.7% year-over-year in Q4, amounting for 29.3% of total revenue. The contribution profit of ZEN accounted for 24.3% of our total gross profit. Our home renovations and furniture business maintained steady growth. In Q4, contracted sales reached RMB 5.3 billion, up 34.7% a year. Revenue reached RMB 4.1 billion, increasing 12.8% a year. Our contracted sales gross rate outpaced our revenue gross rate. driven by a sharp increase in concrete sales with the real estate market recovering this Q4. While revenue recognition lagged behind, the contribution margin for the home renovation and furniture business reached 29.8% of 1.9 percentage points year-over-year, led by growth margin improvements in our furniture and home furnishing retails. Sequentially, the contribution margin for the home renovation and furniture business declined 1.5%, mainly due to the decline in the proportion of high margin home renovation revenues. Contracted sales of furniture and housing furnishing details, which are not included in our home renovation package, reached RMB 1.7 billion in Q4, making up approximately 31.7% of the total contracted sales, an improvement of 4.2% a point from the same period of 2023. Our home rental services business continued to grow at an accelerated pace in Q4. Its revenue reached RMB 4.6 billion, up 108.7% year-over-year, benefiting from the rapid growth in the number of rental units under management. By end of Q4, the number of rental units under management exceeded 430,000 compared with over $200,000 in the same period of 2023. The contribution margin for home rental services held relatively stable at 4.6% compared with the previous quarter. In Q4, our revenue from emerging and other services decreased by 41.1% year-over-year and 9.9% quarter-over-quarter to RMB $439 million. Let's move on to our other costs and expenses in Q4. Our store cost reached RMB 786 million, remaining generally stable year-over-year and growing by 11.8% quarter-over-quarter. This quarter-over-quarter increase was mainly due to the increase in the cost associated with the store renovation and the maintenance. Other costs were RMB 747 million, up 36.3% year-over-year, and 48.8% quarter-over-quarter, primarily driven by the increase in tax and surcharge, financial services reserves, and credit losses. Cost profit rose by 39.4% year-over-year to RMB 7.2 billion. Cost margin was 23%, down 2.4% point year-over-year. The primary reason for the decline was the year-over-year decrease in contribution margins from emerging and other services, and its in-home transaction services. This was partially offset by stronger leverage from the relatively stable store cost and increased total revenue. Growth margin climbed by 0.3 percentage points sequentially in Q4, mainly due to the increased contribution margin from the new home transaction services. In Q4, our gas operating expenses totalled RMB 6.2 billion, up 15.8% year-over-year. and 39.7% sequentially. G&D expenses were RMB 3 billion, increasing 11.8% year-over-year due to the increase of the personal expenses. G&D expenses by 55.8% quarter-of-quarter, mainly due to the high personal expenses and the increased beta provision. Sales and market expenses increased by 12.7% year-over-year to RMB 2.3 billion. as the increase in sales and market expenses for home renovation and furniture business. Quarter over quarter, sales and market expenses rose by 21.2%, mainly due to the growth in market expenses for housing transaction services and the increase in the personal expenses. Our R&D expenses were R&D $739 million, up 38.4% year-over-year and 28.9% sequentially. primarily attributable to the increase in R&D for our housing transaction services and the increased investments in some pioneer research projects. In terms of the profitability, GAAP income from the operations totaled R&D 1 billion Q4, turning positive from a loss in the same period of last year, an increasing of 39.1% sequentially. GAAP operating margin was 3.2%. increasing 4.1 percentage points from Q4 2023, and remaining flat sequentially. Non-GAAP income from operations totaled RMB 1.8 billion, growing 105.1% from the same period of last year, and increasing 28.7% quarter of quarter. Non-GAAP operating margin reached 5.6%, up 1.4 percentage points from Q4 2023, due to the decrease of our operating expenses year-over-year and a down 0.4% point from Q3 2022-2024, attributable to the increase of operating expenses of quarter-over-quarter. Gap net income totaled RMB 578 million in Q4, decreasing 13.8% year-over-year and 15.5% quarter-over-quarter. Non-gap net income was RMB 1.3 billion, down 21.6% year-over-year and 24.6% quarter-over-quarter. Moving to our cash flow and balance sheet, net operating cash inflow was only $5.2 billion in Q4. The new home BISO was 34 days in Q4, which is a testament to our effective risk management. On top of approximately US$132 million allocated to the share repurchase during Q4, Our total cash liquidity remains at a high level of RMB 78.7 billion, which excludes customer deposit payable. With our robust cash reserves, we continue to reward our shareholders who have grown reserves through the active share buyback, enhancing capital operation efficiency and sharing the benefits of our developments with investors. In 2024, we repurchased around US$760 million worth of shares, which accounts for around 3.9% of the company's total share outstanding at the end of 2023. We have consistently delivered our promise to reward shareholders. Since the launch of our share repurchase program in September 2022, we have repurchased roughly US$1.63 billion in shares at the end of 2024, accounting for about 8.6% of total company shares outstanding before program began. Building our commitment to shareholder returns, we are pleased to announce that our board approved a final cash dividend for 2024 of US dollar 0.12 per ordinary share or US dollar 0.36 per ADS to ordinary shareholders and ADS holders of record as of April 9, 2025. The total expected dividend payment will be approximately US dollar 0.4 billion and will be funded from our surplus cash on our balance sheet. With this, our total shareholder returns for 2024 will significantly exceed our net income, representing around 113% of our net income of the year. We intend to provide shareholders with comprehensive returns in a long-term, proactive, and stable manner, aiming to share the value we create together with our long-term shareholders. As we advance through 2025, our financial strategy will accelerate value creation through three imperatives. First, ensure we make effective capital allocation to drive investment to one body, three wings. Strategy initiatives and technology advancement and drive sustainable growth. Second, better deploy technology to drive high financial and risk management efficiency. Third, deliver consistent and sustainable returns to our shareholders, ensuring that our growth translates into tangible value to those who invest in our vision. This is how we energy durability. We make sure the money we return the gases filtered through this framework. It will simultaneously view innovation engines, hard and competitive modes, and the compound value to all of our shareholders. This concludes my prepared remarks for today. Operators, we are ready to take questions. Thank you.

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 to ask your question. As a reminder, we only accept questions on the English language line. For the benefit of all participants on today's call, please limit yourself to one question, and if you have additional questions, 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 Jai Zhao Dong with Nomura. Please go ahead.

Many thanks, management, for taking my question. My question is about the utilization of the technology for BigQuery. So just now, Stanley has mentioned that BigQuery is able to empower its offline source and increase its operational efficiency through technology tools, such as AI property, consultant property, sourcing assistance, et cetera. So can I ask, is the management considering further introducing or collaborating with advanced AI large models, such as DeepSeq, to enhance and optimize the business operations of the company? Like, for example, how can AI be leveraged across the different business areas, such as home renovation, property recommendations, and customer services to further increase the user experiences? Thank you.

Okay, thank you for your question. For how AI might impact our industry by enhancing efficiency and user endurance, we can think about this from three perspectives. The first is the service side, and the second is supply side, and the third is the platform side. From consumers' service perspective, buying and selling real estate has become more challenging for today's clients due to increased uncertainty and risk in decision making. As a result, Clients need access to data, knowledge, know-how, and what we now refer to as intelligence. AI can effectively address this issue, customer face, leading us to conclude that AI can significantly optimize the customer experience and greatly improve the quality of service on the demand side. And secondly, from the supply side perspective, we believe that AI will enhance the capabilities of skills agents and accelerate the industry focus on high-quality supply. For the third one, from platform perspective, AI provides platforms with more opportunity to address efficiency changes through innovation. We often emphasize that the core elements of the industry are quality, skill, and efficiency. Historically, our strategies Through authentic property listing, building housing dictionary standardization, and our platform model have resolved quality issues on the services side. We also tackle challenges of scalability on the supply side through adoption of platform business model. However, the industry most significant challenges remain efficiency. If efficiency issues are not resolved, the profitability will also be a challenge. The emergency of AI can be seen as a production factor integrated into the value chain, potentially helping us tackle quality and scale problems while also addressing efficiency challenges. This can create new opportunities for the entire platform and increase its value. So to give this conclusion, we place great importance on the capabilities and the potential of AI, and we have initialed a series of explorations. We have integrated our own residential industry data with advanced foundational model to develop our NAT language model. Chahome and our image NAT model, DreamHome, we are iterating on these models and expanding our idea capabilities to support a variety of applications. Here are a few examples of the application I can show for you. For the customers, we are currently conducting gray-box testing for AI-powered home-syncing assistance built on DeepSeq R1 and BigShare data and our own knowledge graph. We have plans to open for trail in March. This 24th and 7th, home-synching AI system combines deep industry exercise with rapid, accurate understanding of user demands and the ability to customize real-time solutions. It will help users to overcome the initial challenges of high early-stage decision-making costs in home searching, while also helping the agent clarify client needs and improve operational efficiency. In the VR home tool scenario, through the combination of the high precision imaging of the new generation of P4 camera and the deep-seek driven intelligence model, we can leverage a more refined special understanding capability to enhance the intelligence assessment ability for houses and improve the VR home selection on a home tool. And for the business partners, we are building comprehensive solutions, for example, for property agents. We have conducted great bulk testing for AI systems, like AI property selector and AI property lifting maintenance system in several cities. We have also launched AI power tools, like AI marketing assistant and the Xiaobei training camp. to enhance agent capabilities in client acquisition, identification, and personalized solutions for home renovation and furnishing businesses. We have implemented the AI design tools that can automatically generate design plans for marketing, visuals, and we have our self-developed beam system with AI-driven delivery measurements We also have our cloud-based intelligence construction system that can carry our AI automated construction management monitoring, AI intelligence inspection and acceptance tools, creating an almost fully AI-embedded digital loop. For organizational efficiency, we have deployed five digital AI agents, including Sun Xiaosheng, achieving efficiency breakthroughs in areas such as business analysis and operational strategy support. Let me also share some results of these applications. The one, the first, our AI property service management manager already automatically handled 60% of rental property owner management tasks during the testing. The second, digital AI agents like Sun Xiaosheng have analyzed 75% of their time and nearly 20% of time for operational strategy teams. The third, AI programming tools also assist in generating 30% of R&D costs. For 2025, we plan to increase our AI investment to further strengthen the foundational capabilities of our model, data, and solutions while accelerating interactive applications, research, and development. These steps will make our various AI assistance model and further promote AI integration and AI-native innovation capabilities throughout the organization. Finally, AI facilitates a more efficient flow of information and knowledge. which will speed up the end of old model that rely on scale to exploit information gaps. We must also break our reliance on scale. On the other hand, AI achievements make it possible for us to enter a new era. We are far from where we need to be with the developments on our advantages like years of accumulated industry data assets. in terms of applications, scenarios, and the business validation, development, and then early strategic planning in the industry. In the future, we will continually expand AI's role in deeply reshaping the entire residential services process. We believe this is both big responsibility as an architect of the residential industry digital infrastructure and crucial to creating long-term value for industry. That's my answer. Thank you.

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

Okay. Thank you, Guan Yicheng, for accepting my question. My question is about the real estate market. Since September, we have seen a very strong market rebound. I would like to ask Guan Yicheng how he sees the market recovering. Thank you, my friend, for taking my question. My question is regarding the property market outlook. As we have seen a pretty strong rebound of the property market since last September. Just wondering if my friend can share any insights on the recovery sustainability, especially regarding the trend year to date. and how would management team think about the market outlook for this year, and are we going to turn more optimistic about the market? Thank you.

Thank you, Timothy. In 2024, the market saw many changes. This can be summarized by presenting policy stimulus, new positive signals in Q4, and accelerated structure changes. Let's look at these changes in more detail. On positive fronts, 2024 has seen a stronger than expected policy impact. Particularly, the central government had a policy period on September 26th to stabilize the property market with more intense systematic and swiftly implement measures than before being rolled out. This policy effort brought market resilience In 2024, the existing home market is nationwide, so decreased price for the increasing volume. According to estimates from the Baker Research Institute, in 2024, the number of existing home transaction units in China rose by around 15% year-over-year, while total GTV rose by around 2% due to the price factors. Particularly with the release of this new policy on September 26, the transaction recovered quickly. In Q4, the think-home GDP on our platform rose around 60% year-over-year, making a stronger and more sustained rebound than ever before. Also, the price stabilized somewhat, kicking up 0.2% in December compared to September, making the first quarter increase in nearly two years. In 2034, the new home market nationwide continued to face challenges. According to the official data, National new home sales declined by 18%, while the new home GTV of CRRC's top 100 developers dropped by 28% in 2014. However, a robust rebound in the new home GTV during Q4 has bolstered the market throughout the year. Regarding the transaction structure, it is increasingly dominated by the existing home. In 2014, the proportion of existing home GTV nationwide increased to 46%, up 5 percentage points compared to the year of 2003. Notably, this percentage exceeded 50% in the 30 top tier cities. This was mainly due to the rapid decline in existing home prices, which made it more attractive to home buyers. Meanwhile, readily available existing homes have a diverse demand away from the new home. On the demand mix, the rise of nearly new existing homes meant increased demand of home upgrades, which is the largest segment of buyers. According to Baker Transaction data, the percentage of existing home sales with three-bedroom and above grew from 40% in 2020 to 55% in 2024. The proportion of nearly new homes built with the last 10 years jumped from 27% in 2020 to 43% in 2024. Regarding the recent market updates, let me talk about the in-home market first. Based on our platform data, the existing in-home market has sustained the momentum where the transaction volume rebounded the most expected after Chinese New Year. To specifically look at the in-home transaction volume, during the four weeks following the Spring Festival, the transaction volume of its in-home rose by around 40% in OVN, among which the tier 1 cities grew by 50%, while the tier 2 cities such as Chengdu, Ningbo, and Tianjin also had a robust growth. Notably, the big weekly transaction volume surpassed the October high following the September 26 point stimulus, reaching the highest level since March 2023, when the market's barriers are pent up demand drew the rebound. Overall, the market followed the seasonal trends, with momentum starting to moderate in the fourth week after spring festival, while decline was marginal, sustaining a high level. Regarding the home prices, in February, the existing home prices slightly decreased by 0.4% month-over-month, with the peak between the notable smaller than average amounts decline in 2024. We can refer to Baker's sentiment index, which we compiled based on the proportion of price increase adjustments among all listing price adjustments made by homeowners. The index rebounded rapidly in October last year. After reaching a low point during the spring festival, it has been gradually recovering, with fourth-year cities showing relatively higher sentiment levels and the changes exceeding 15%. New home market recovered mildly in a traditional off-season. During the four weeks after holidays, new home subscriptions increased over 10% year-over-year. Price-wise, the new home price did stabilize sequentially in September. Regarding the market outlook in the year of 2025, we believe the market may start to bottom out in 2025. In our view, The prerequisite of overall market stabilization is achieving stability in existing home price. According to our survey, insufficient confidence in housing price expectations is the biggest obstacle preventing people from purchasing homes. We believe the stabilization of existing home price depends on two factors. First, a balanced supply and demand dynamic with healthy market liquidity. improve the homeowner's confidence, with less people cutting prices deeply due to the urgent sales. The paper sentiment index as a leading indicator would be a useful tool in this regard. The index above 20 for at least six months would demonstrate a market consensus on the price stabilization. The further policy refinements will stimulate homebuyers' demand, driving transaction volume recovery. In some cities, the market will shift from price highs for volume to increase transactions with stable prices. Our recent survey indicates that the proportion of buyers planning home purchases within a year has risen to a 2-year high. This reflects stronger market confidence in short-term. We will continue to monitor home viewing activity and transaction volume as the key indicators. Stable existing home price will also help stabilize the price of new homes. Coupled with the policy optimizing new home supply and housing repurchase program, this will support new home sales and investment recovery, helping to restore developers' investment and development capability. Achieving this stabilization chain will require more conventional conflict cyclical policies in the macroeconomy and real estate sectors to restore consumers' confidence and expectations. In a neutral scenario, we expect the same-home market to realize a modest recovery in 2025, while the new-home market adjustment may continue due to some complexity of the risks, but its yield-weight decline may narrow. Meanwhile, we expect further structural divergence in the housing transaction in 2025, reinforcing the dominance of these new homes. In particular, larger, relatively new secondary new homes that meet buyers' home upgrade needs will become top choices. The new home market will accelerate supply-side innovation, offering upgraded products that match the evolving demand. Thank you.

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

Please go ahead. Please go ahead. 我们会否以同样的方法来实现这个增长呢? 或者是我们会用其他的比方说 AI 这种方法来体现一些增长或者效率呢? 这个是第一个提问 然后呢 I'm going to translate my questions So it's about the agency business The number of agents and store on Baker platform continues to grow The company has made a lot of effort and investment And it is quite aggressive What kind of growth have the company achieved in the year of 2024 with such an investment? And for the year of 2025, will Baker follow the same path for growth or will we consider some other like AI improving the efficiency as well as having a higher growth? Thank you.

Thank you, Grayson. In 2024, the main focus of the housing content services were promoting growth and optimizing the ecosystems. With that in mind, we achieved a remarkable growth in our performance, demonstrating our ability to continuously outperform the market. Our success also helped agent and store owners in our platform partially offset the impact of market transactions. One of our key focus last year was expanding the agent and store network. We introduced the target incentive package tailored to stores of different sizes to attract industry players. By end of 2024, the number of active non-lianjia stores on our platform exceeded 44,000, and the number of active non-lianjia agents reached 331,000, up 20% and 11% year-over-year, respectively. Notably, four big new brands joined the platform, each with over 100 stores. Our goal in expanding our network is to enable industry participants to enhance our operational efficiency. That is, by leveraging our customer traffic cooperation network, practically true for operations and management, and diversify business opportunities within the broader residential service sector. Within three months of joining, The per-agent efficiency of newly connected stores reached over 80% of the efficiency level of those already connected stores. Also, around 13% of newly connected stores could double the average productivity level of the platform visiting stores within six months when they joined the platform, becoming high productivity stores. Thus, our store network's function has delivered strong investment returns. The payback period for the investment for the new store connecting the first half of the year was at six months, with the cumulative store attrition rate of only 5% within the six months of the connection. With the larger network of store agents, we leveraged the digitalized scientific measurement to help store owners expand the home listing coverage and improve the conversion rate. As the scale of our agent store network continues to expand, it becomes even more critical to deepen ecosystem governance and strengthen our relationship with all stakeholders. On our governance mechanism, we expanded the operation of our regional core governance council. enabling store owners to better practice in decision-making of some platform rules and enhancing engagement. Additionally, our store point-based reward program was successfully rolled out in live pilot cities. By year-end, 46% of connected stores received award benefits, average RMB 10,000 in equivalent value per store. We also created tools like online store owner workshop to simplify their management process with functions such as dashboard and the traffic lead management. The satisfaction level of the Connect store and the store inputs throughout the year rising by 4% from Q1 to Q4. Additionally, the monthly store attrition rate in cities, including Beijing and Shanghai, declined by 0.2 percentage point in 2024 compared with the year of 2023. while monthly agent attrition rate dropped by 1.7 percentage point year-over-year. As Lianjia continues to serve as the key growth engine, a talent hub and an innovation leader in the industry will further solidify the positioning of Lianjia in 2024. By the end of the year of 2024, Lianjia had over 114,000 active agents, making a net increase over 16,000 agents up 17% year-over-year. The average monthly attrition rate of Lianjia agents nationwide decreased by 0.7 percentage point year-over-year to a lower level of 3.4%. As transactions slowed and the requirements for agents became more demanding, our solution was to leverage the large store model to enhance organization efficiency. This model was first implemented in Lianjia with average number of the agent per store rising to 20 at the end of 2024. Store structure continues to optimize, with the proportion of the large store reaching over 50%, an increase of 8.6% each point year-over-year. The average commission per Lianjia store reached 2.53 times that of the connected stores, reflecting a 5.9% year-over-year growth. Talent development remains a key investment area for Lianjia. We launched a three-year leadership development program for the enhanced store managers. This initiative will strengthen store efficiency and help enhance platform ability to retain top performing store managers. In 2025, growth and ecosystem will continue to the key roles for our housing transaction services. Meanwhile, we also strive to enhance efficiency. We will continue to ensure the steady growth in our store and agent network. Meanwhile, we'll increasingly drive business goals through efficiency improvement, leveraging ecosystem collaboration, and digital tools. This includes implementing a comprehensive long-term store incentive program, such as a point-based reward system, to convert a skilled advantage to efficiency again. Also, by utilizing more refined management tools, we'll empower store owners with enhanced operational capability improving regional penetration and helping more agents and stores to increase their income. Regarding Lianjia development, we will continue to strengthen the large store model, validating its stability with Lianjia and promoting it to those connected stores. At the same time, Lianjia will further support growth of our three-winds business, achieving the brief source in the community-focused model for home renovation and rental services in Beijing Thank you.

Your next question comes from Eddie Wang with Morgan Stanley. Please go ahead.

感谢管理层接受我的提问。 那我的问题是关于咱们租赁业务的, 因为看到四季度包括整个2024年吧, 我们公司的这个租赁业务在规模上实现了非常高速的增长。 Thank you management for taking my question. My question is about the home rental business We have achieved rapid growth in the home rental business. What's the key advantage to drive this strong growth? We observed that the home rental market remained challenging with declining rents and the persistent oversupplies. How can we maintain the stability of the home rental business and at the same time to enhance the profitability under such conditions? Thank you.

Secondly, integrity for our home rental business achieves a significant scale-up and optional breakthroughs, particularly in our carefully run services. Centering the service and efficiency, we established a solid fundamental framework for our business model. Scale-wise, revenue of our home rental services reached 14.3 billion RMB, growing 135% a year. primarily driven by this function of our cash-free rent. The number of mentioned units under cash-free rent exceeded 420,000 by the end of 2024, compared to over 200,000 a year ago. As we operate a large scale of properties, we have developed a deeper understanding of the high-frequency, non-standard nature, long cycle, and complexity of the rental services. To address this, we have broken down the non-standard services to standardized actions undertaken by service providers who are assigned to specific roles through the specialization, thereby improving the efficiency. For instance, offline rental services such as the property hangover, rental inspection, and face-to-face key exchange are handled by rental rewards to ensure standardized hangover procedures. while rental service managers handling the tenant request through centralized online management, providing 24 slash 7 support. By year end, 9 times service order accounted for over 60%, aligning better with the tenant schedules. We also deployed AI motion reader tools to detect tenant disaffection and proactively improve the service mechanism. With that, our property managers can focus on the rental unit sales and the occupancy without being distracted by the rental affairs. By the end of 2024, the efficiency for the unit sales increased around 29% year-over-year, driving rapid growth in total housing units of cafe rent. Beyond organizational capability, we have developed an intelligent AI system utilizing AI technology to empower operations. From the pricing strategy for the property acquisition, inventory management, to listing strategy, we deployed enticing the algorithms to dynamically manage traffic, pricing, and then marketing strategy, and enhancing labor efficiency and assets turnover. For example, in pirate cities, the system has increased operation efficiency of the service providers and the managers by around 40%. improved the property turnover rate by 7.7% and shortened the turnover cycle by 11.3% since its launch. From a financial perspective, our rental business saw a sequential improvement in contribution margin in Q4. As the impact of the Q3 summer rental peak faded, the cash flow run experienced a culture-over-culture decline in new home sales and leasing. This led to a decline in expense for the operational staff as a percentage of the net rental income, resulting in a marginal improvement. On a three-year basis, core operational metrics of the cafe run improved significantly. Enhanced tenant service boosted the customer retention. The customer complaint rate at the end of the year decreased by more than 20% compared to the beginning of 2024. and we also conduct cost structure optimizing, improve the service quality for the 22-4 tenant renewal rate to 54.4%, and the two percentage points increase year-over-year, reducing the channel cost of releasing. Regarding the management of the rental cost due to the vacancies, on one hand, we focus on enhancing re-renting capability This helps significantly reduce turnover time. Even in the Q4 off-season, the average vacancy period decreased from nearly 15 days at the beginning of the year to under 12 days in Q4. On the other hand, we continuously upgrade our product model. The coverage of new product models, which increase no vacancy period, continue to rise in Q4. This model enhances our resilience against the rental price volatilities and reduce the vacancy risks. The deposit cost per unit of our cafe rent model also dropped. This was mainly due to the increased initial leasing success rate, which rose to over 80% in 2024, up by a percentage point year over year. For the year of 2025, first of all, we still have the high hope for the number of rental units managed on the cafe rent. Meanwhile, we will continue to balance scale and operation. To that end, we need to strengthen our value proposition for both tenants and property owners. This key lies in heightening our service quality and boosting rerouting efficiency. For tenants, we will further refine our role specialization model and tailor the service standards for different customer segments. For leasing efficiency, We will focus on the talent development in leasing channels, leverage AI to enhance sector leasing efficiency, and expanding snow traffic channels and value-added services, such as cosmetic housing decoration to increase the leasing certainty. Thank you.

Thank you. Your next question comes from Sophie Jang with CICC. Please go ahead.

Thank you for accepting my question. I'm Zhang Xiaodan, an analyst at Zhongjin. My question is about home-made businesses. We see that home-made businesses have surpassed the 100 billion income threshold in 2023. In fact, they have maintained a relatively fast growth in the past year. Could you please help us analyze the core driving factor behind the continued breakthrough in the scale of home-made businesses? I would also like to ask the management to share a strategic plan for home-made businesses in 2025. Thank you. I will quickly translate my question. Thanks, management, for taking my questions. And my question is regarding the home renovation business. The home renovation segment has maintained solid growth during the past year after surpassing the revenue threshold of 10 billion RMB in 2023. So can management share the main drivers behind the growth and also the strategic plan for the business segment in 2035? Thank you.

Thank you, Sophie. In 2024, our home renovation and furniture business achieved robust growth. In terms of scale, our revenue reached RMB 14.8 billion in 2024, up 36.1% year-over-year. Contracted sales amounted to RMB 16.9 billion, making a year-over-year increase of 27.3%. Contracted sales exceeded RMB 3 billion in Beijing, RMB 2 billion in Hangzhou, and RMB 1 billion in Shanghai and Chengdu. Five other cities also achieved contracted sales over RMB 500 million each. As for the profitability, the contribution margin for the home renovation furniture business reached 30.7% in 2024, an improvement of 1.7% in point compared to the same period last year. Taking Beijing as a showcase, in 2024, the contribution margin for the home renovation furniture business reach approximately 35%, and the pre-tax profit margin, including high quarter cost charge, reach over 5%. The breakthroughs in our home renovation and furniture business are primarily attributable to the highly efficient synergies between our housing transaction services and the new business, as well as our enhanced construction delivery capability and the support from our underlying digital platform. Let me share some additional details. First, deeper integration of our housing transaction services and renovation services significantly strengthen our customer acquisition ability and drove the rapid growth in contracting sales. We encouraged our agents to recommend our new business by a point-based incentive model. As a result, this has been an increase in the proportion of the contract sales by agent referrals to the total contract sales. Second, as our contract sales grow, we need to strengthen our delivery capabilities. To accomplish this, we optimize dispatch efficiency and workflow, further shortening the construction timelines. Our average construction timeline is around 94 days in the Q4 2024, representing a decline of over 10 days in the same period of last year. Meanwhile, we continue to iterate our home sound system and launched version 2.5 nationwide. By analyzing the product measurements and the unifying draw rules, we have improved the system underlying data foundation. This ultimately enables us to produce ultimate beam design construction drawing and press codes and the unified online material scheduling. About the business outlook for the year of 2025, we have achieved further breakthroughs in business scale last year. And in 2025, our core goal for our full-service renovation business is to enhance product strength and improve delivery quality with a customer-centric approach and improve management and operational efficiency. To the end, we intend to implement the following key initiatives. input the product strengths with this model iteration and the showroom market. We plan to establish a strong brand image as a full-service home renovation provider. Based on our insight into the customer needs, we aim to provide comprehensive renovation solutions rather than simply selling the different products. At the same time, we expect to upgrade our showrooms. We plan to implement a showroom as a core display of our offline store We will collaborate with professional designers to create a realistic showroom and display various rendering to enhance the offline experience for the customers. Second, enhance delivery capability and promote the professional of the project managers. We believe that long-term stable cooperation with project managers is the fundamental guarantee for the quality of the home renovation delivery. We intend to take the full-time project manager as a call to enhance delivery quality, and we will motivate their initiative through the order allocation incentive mechanism to improve the service provider delivery satisfaction and reduce customer complaint rates. Meanwhile, product managers should be responsible for the delivery quality and orders recommended by previous customers. Third, we enhance the operational efficiency. We have found previously There were two risk providers connecting with the customer or the leading key person in charge. With that, we have defined the store manager as the first manager who is fully responsible for the customer needs, contrary conversion, cost delivery, and business management, achieving an entry and management loop. We further defined the designer as the first person in charge of the renovation solutions and the conversations. We will strengthen designer training and conduct professional certification to enhance our capability of the full-service home renovation design skills. We also defined the project manager as the first person in charge of the class delivery. Then we'll focus more on the overall management of the project construction period and the construction quality. At the same time, we place great emphasis on cultivating business districts We intend to focus on key business districts, gain thoroughly understanding of the house layout structure and the common renovation problems in advance, and make the service scope of designers and project managers more concentrated, thereby improving the service efficiency and quality. We have always believed that quality is the foundation of the home renovation and furniture business. Only our solid foundation can a strong and long-lasting building be constructed. We will continue to move forward in our pursuit of security with even greater determination and confidence in our future development path. Thank you.

Thank you. We are now approaching the end of the conference call. I'll now turn the call over to your speaker host today, Ms. Siting Lee, for closing remarks.

Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact FACO'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.