KE Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

There are 6 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc. 2nd Quarter 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.

Operator

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. Siting Li, IR Director of the company.

Operator

Please go ahead, Siting.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to KA Holdings Inc. Or Baker's 2nd 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.

Speaker 1

Kei.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.

Speaker 1

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 statements in our earnings press release, which applies to this call as we will make forward looking statements. Please also note that Seika's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures. Please refer to the company's press release, which contains a reconciliation of the unaudited non GAAP measures to comparable GAAP measures, likely unless otherwise stated.

Speaker 1

All figures mentioned during this 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 have independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue ways 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 convenient service only.

Speaker 1

And in case of any discrepancies, 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.

Speaker 2

Thank you, Sidney. Hello, everyone. Thank you for joining Bigo's 2nd quarter and interim 2024 earnings conference call. In the Q2, we continue to outpace the broader market. Since the beginning of the year, we have made strategic efforts to boost growth, foster our ecosystem and transform our business into a technology powered 1st of our residential services platform model.

Speaker 2

These efforts have paid off, and we achieved high quality performance across the board. A set of supportive policies bolstered the overall market recovery in the Q2. Notably, the existing home market, especially in 1st tier cities, rebounded sharply in May June. Our home transaction business performed well within this favorable market environment, with both our existing and new home transactions passing the broader market's performance.

Speaker 3

More specifically,

Speaker 2

in May, the existing home transaction on Beaker's platform saw positive DTV growth compared to the previous year. And in June, growth surged by nearly 70% year over year. According to estimate from data disclosed by the housing bureaus and housing associations of the 4 1st tier cities, The total number of online restricted transactions for existing homes grew by around 16% year over year in the Q2 of 2024. For reference, while online restricted transactions on Beike's platform grew by 40% year over year. For new home transactions, the contraction rate on Beike's platform narrowed to 25% year over year in May from contract transaction value.

Speaker 2

And in June, GTV turned positive with the contract transaction value growing over 12% year over year. For the Q2, DTV OCRIC's top 100 real estate companies declined by 35% year over year, while DTV contraction of big platform narrowed to 20%. The improvements in the Q2 this year were partially due to the worrying efforts of the high base we saw in the Q1. More importantly, our scientific management and proactive operational initiatives focused on improving our performance against internal benchmarks and the time our ability to outperform in a relatively stable market. I'd like to share some color on our existing home business.

Speaker 2

In 2024, we have placed more emphasis on our operations in scaling up store and agents networks. Enriching community outreach and managing key housing projects to broaden our customer base and home listing coverage. Since the end of 2023, our platform has seen a net increase of over 2,400 active stores or a 6% increase and a net increase over 40,000 active agents. As we expand our touch points, we are also putting more effort into high quality listing management, concentrating on quality home listings and exploring different ways to tap into new media based opportunities for customer acquisition and conversion. All these initiatives have improved customer and home listing conversion rates.

Speaker 2

We also booked collaboration efficiency with efforts such as region based core governance communities and the reinforce business conduct governance by preventing private offline deals, improving closed loop management on our platform. On the new home business front, we doubled down on our efforts to increase number of cooperation projects and strengthening our sales conversion capabilities. In terms of expanding our cooperation with more new home projects, we established an end to end monitoring process for all projects and are focused on managing key housing projects and developers to improve the quality of new home project. To improve sales conversions, We overhought our sales process this year. Our approach to new home sales used to be a huge cross strategy that focus more on properties than customers.

Speaker 2

This year, we are adopting a more precise approach driven by customer demands. In addition, we started monitoring and analyzing conversion day from our cooperation with upstream and downstream value chain partners on a daily basis. We also delivered impressive results in our non home transaction business of home renovation and furnishes and home rental services. Despite the challenging market, in the first half of the year, revenues from our home renovation and furnishing business and home rental services grew close to 60% 177%, respectively, compared to a year ago, and the gross margins continue to improve. In fact, this year, we intentionally slowed down slowed our pace in the home renovation and the furnishing business against the rapid growth in scale we achieved last year.

Speaker 2

To give you a bit of context, we're exploring new business within the big organization, building confidence in the business' viability and the continuity is the first and the most important challenge. That's why last year was all about accelerating our scale, where we are succeeding without compromising quality of reputation. This proved the business was viable, making a crucial first day. However, if you run too fast, you risk sacrificing quality and losing customers' trust. How to balance scale and quality and the integrity of trust is a second challenge to developing new business.

Speaker 2

Having confirmed the business' viability with last year's strong performance, we slowed down this year to make sure we are growing in the right way by addressing the second critical challenges. This year, we have been focused on 2 areas. 1st, we enhanced our capability to deliver comprehensive, one stop, full service solutions. This includes improving our development of full service complete renovation products, our management capabilities with service providers, supply chains and integrated delivery as well as building the corresponding system infrastructure. 2nd, we iterated and promoted the Home SaaS 2.5 system.

Speaker 2

We integrated the 1st stop full service capabilities we developed in Beijing into HomeSaaS 2.5, which can handle up to 5,000 simultaneously construction orders. We also integrated the BIM SSC, middle office and the integrated material fulfillment model. Our goal this year is to roll out these advanced capabilities nationwide through the HomeSaaS 2.5 system. This year, we continue to ramp up our ability to connect new supplies on our platform. The number of stores for our housing transaction services is steadily increasing, and the number of service provider for our new initiatives is also growing rapidly.

Speaker 2

Without these new suppliers, our customers will face limited options, and our service capability could be constrained, if pending supply also inevitably forces us to consider how to how best to manage it, ensuring their quality and improvements. Our biggest challenge is to leverage certain rules to have these supplies achieve better outcomes. We view these supplies on our platform as targets for transformation, not monetization. That's to say, once the suppliers, including service providers, join our platform, we must enhance them. As a result, we are consistently investing in training for stores, operators and implementing robot operations for home listings, customer engagement and our ecosystem to enhance resources conversion efficiency.

Speaker 2

Regarding our new businesses, we have made significant effort to reform the incentive mechanism for service providers through rule based order dispatch and service provider rankings. By fostering a transparent and a benign competitive environment, we ensure resources are allocated more efficiently to the most capable talent. In the next era, customers will become more selective about services, allowing high quality service providers to stand out and service variance will decrease. Customers' needs will be more diverse and new. More segmented needs will emerge.

Speaker 2

These two points guide our efforts to upgrade our products and services and deepen our operations. This remains tremendous potential for growth and efficiency improvement in both our relatively mature housing transaction services and our emerging business ventures. One solution is to focus on community based business by leveraging in-depth community knowledge and understanding residents' profiles and their needs for home purchase, rental and renovation. We can offer more targeted products and services. This approach will lead to change in customer acquisition channels, organizational structures and supply chains, allowing us to differentiate ourselves from the traditional residential industry.

Speaker 2

More importantly, these changes will help us build trust in our low frequency transaction industry. The key to community based business is high service density. To that end, we launched more stores and organizational innovations in communities this year to increase supply. For example, in Shanghai, we added a number of community convenience service store stations affiliated with Lianjia stores and other cities are replicating this model. Additionally, we are integrating home renovation and rental services with Yidianya stores.

Speaker 2

We have deployed home renovation expert agents in over 1200 Lianjia stores and are showcasing renovation technicians and hosting in store designers in pilot stores. Our coverage of existing home listing in Shanghai grew from 76% last year to 80 7% in areas that we operate in. And the revenues from our home renovation and our carefree rental business in Shanghai with Q2 grew by 63% 140% year over year, respectively. In Chengdu, we piloted a strategy focusing on key housing projects for our home renovation and furnishing business. Our operational team shifted back to intensive community engagement rather than dispersed services, rebuilding our community based services process and our product logic.

Speaker 2

These pilot projects have demonstrated impressive improvements in conversion efficiency and productivity. In the second half of this year, the external micro environment will continue to pose many challenges to our business. Faced with these changes, our core goal has always been to build capabilities that will keep the organization constantly moving forward from 1 success to the next. Over the past month, we have been fortunate to validate with minimal trail and error that our home renovation and the furniture model as well as our rental business model can drive growth in our organization. At the same time, our 1 body business has shown further growth potential through proactive market outreach, providing support for store owners and agents to achieve great success.

Speaker 2

By integrating our new initiatives, we can drive even greater growth. In this context, our next step is to address issues related to the appropriate pace of each business and the balance between scale, quality and efficiency. Thank you. Next, I would like to turn the call over to our CFO, Zhitao, to review our Q2 2024 Financials. Thank you.

Speaker 3

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our Q2 performance, I would like to briefly touch on some updates in the housing market. In the first half of the year, the central and the local authorities implemented the easing policy intensively. This included further relaxing purchase restriction, lowering down payment ratios and cutting mortgage rate. The real estate financing position mechanism was established and fit into practice at an accelerated pace.

Speaker 3

The Central Bank launched 3 lending tools to support local SOEs in acquiring existing commercial homes, facilitating the nationwide implementation of old FOLU housing through a program. In the first half of the year, the market showed a gradual recovery. Although market performance was muted due to the seasonality at the beginning of the year, all these positive policies contributed to the market gradual improvement with the high base effect from early last year receded. In Q2, the new home market performed well, especially in 1st tier and some key second tier cities, where market activity notably improved. The new home market remains gradually subdued even as its year over year decline narrow month over month in Q2, With backdrop of an incremental rebound in market sentiment, we continue to uphold the market neutral view and focus on improving our performance by continuously deepening operations, further empowering service providers and store owners and promoting rapid growth of our new initiatives.

Speaker 3

The combination of these endeavors led to our excellent financial and operating results in this Q2. For Q2, the total GTV reached RMB839 1,000,000,000, up 7.5% year over year. Net revenue was RMB23.4 billion, representing a year over year increase of 19.9%. Gross margin improved by 0.5 percentage points year over year to 27.9%. GAAP net income reached RMB 1,900,000,000, rising by 46.2 percent year over year.

Speaker 3

Non GAAP net income grew by 13.9 percent year over year to RMB2.69 billion. Both revenue and non GAAP income exceeded the market consensus. Moving to our home transaction services for Q2. As the overall market gradually recovered alongside our strong operational growth and the store network expansion this year, Our existing and the new home business both demonstrated outstanding performance. Revenue from existing home transactions reached RMB7.3 billion, up 14.3 percent year over year and 28.1% quarter over quarter.

Speaker 3

GTV was RMB570.7 billion, increasing 25% year over year and 25.9% quarter over quarter. Our GTV and revenue growth rates were closely sequentially, keeping our monetization capacity relatively stable. Year over year GDP growth surpassed the revenue primarily due to the adjustment in the commission rate of Beijing Lianjia. Which started in the Q3 of 2018 history of 5% commission rates for existing homes. The contribution margin from the existing home transaction services reached 47.5%, climbing 1.9 percentage points year over year and 3 percentage points quarter over quarter.

Speaker 3

The growth was mainly due to the stronger leverage from the increased revenue, coupled with relatively stable fixed labor costs. In terms of the new home transaction services, despite market downturn, we significantly outperformed the market across multiple metrics. ZRST shows the sales from the top 100 developers decreased by around 35% year over year in Q2, but grew by about 38% quarter over quarter. Notably, sales in June dropped by approximately 22% year over year, with the year over year decline narrowing month by month. In comparison, our new home TV reached RMB235.3 billion, grew by only 20.2 percent year over year and rose by 55% sequentially in Q2, benefiting from the higher penetration of the developers of China, different cooperation with developers and the increase of collaborative progress as well as the systematic improvements in our operational and sales capabilities.

Speaker 3

In particular, the amount of the contracted transaction volume from new home business increased 12% year over year in June, and this exceptional performance thus in stark contrast to the industry. Revenue from the new home content services declined by 8.8% year over year to RMB7.9 billion, while increasing 61.4 percent quarter over quarter. Year over year, the sequential revenue growth outpaced year over year GTV growth, once again demonstrating our strong and steady monetization capabilities in new home transactions. The contribution margin for the new home transaction services recovered to 25%, falling by 2.2 percentage points year over year, mainly due to the strategic increase in variable commissions under our strategy this year to improve our ecosystem. New Home contribution margin grew sequentially by 2.8 percentage points as we gained more leverage from the relatively stable fixed labor costs and the higher revenue.

Speaker 3

In Q2, the commission income percentage from SOE developers rose by 55%, and the proportion of commissioning advanced projects maintained at a relatively high level at 49%. Revenues from the home renovation and furniture, home rental services, emerging and operating services grew by 85.3% year over year in Q3, reaching 34.7% of total revenue, surging 12.2 percentage points from the same period in 2023. Our home renovation and furniture business maintained a steady growth. In Q2, contracted sales reached RMB 4,200,000,000, up 22.3 percent year over year. Revenue reached RMB4 1,000,000,000, rising by 53.9% year over year.

Speaker 3

The revenue growth rate outpaced several of the contracted sales, largely due to the improved delivery efficiency. The contribution margin for the home renovation and the furniture business was 31.3%, up 1.7 percentage points year over year and 0.7 percentage points sequentially. This was mainly due to the improvement in the gross margins of our retail business. The contracted sales of the furniture and home furnishing retail, which are outside of our home renovation package, reached around RMB1.2 1,000,000,000 in Q2, accounting for around 29% of total contracted sales, improving by 3.5 percentage points from the same period of 2023. Our home rental services continued to grow at an accelerated pace.

Speaker 3

In Q2, its revenue reached RMB3.2 billion, up 167.1 percent year over year, mainly due to the rapid growth in the number of rental units under management. By end of Q2, the number of units managed by our home rental services exceeded 310,000. Subsequently, the number of rental units managed by carefree rent reached around 300,000 compared with around 120,000 in the same period last year. The contribution margin held steady at 5.8% from the previous quarter. In Q2, our net revenue from emerging and operating services increased by 57.8% year over year to RMB 874 1,000,000.

Speaker 3

Next, let's move on our other cost related expenses in Q2. Our store costs remained stable year over year and quarter over quarter at RMB681 1,000,000. Other costs increased by 18.6 percent year over year to RMB511 1,000,000, primarily due to the higher taxes and the surcharge and the basic maintenance cost for the rental services. Sequentially, it rose by 34.8%, mainly due to the increase in taxes and the surcharge and the professional service fee. Gross profit rose by 22% year over year to RMB6.5 billion.

Speaker 3

Gross margin came in at 27.9%, up 0.5 percentage points year over year. The primary reason for the updates was from the higher proportion of the revenue and increased contribution margin year over year in non housing construction services business. Our store costs are also relatively fixed, all of which gained us more leverage and partially offset the decline in our new home contribution margin year over year. Quarter over quarter, gross margin rose by 2.7 percentage points, largely driven by a sequential improvement in the new home contribution margin and an increase in its revenue share. Combined with our revenue growth and the stable store cost, this further amplifies the leverage effect.

Speaker 3

In Q2, our GAAP operating expenses totaled RMB4.5 billion, up 5.6% year over year and 90.5% sequentially. G and A expenses were relatively stable both year over year and sequentially at RMB2.1 billion. Sales and the marketing expenses grew by 14.1 percent year over year and 15.9% quarter over quarter to RMB1.9 billion as we invested in the rapid dysfunction of our home renovation and furniture expenses, increasing associated sales and marketing expenses. Our R and D expenses were RMB505 1,000,000, rising by 6.3% year over year and 8% sequentially, mainly due to the increased R and D expenses in our home transaction business. In terms of the profitability, GAAP income from operations totaled RMB2 1,000,000,000 in Q2, up 86.4 percent year over year.

Speaker 3

This follows the GAAP income from operations of RMB11.9 million in the Q4, which increased substantially quarter over quarter. GAAP operating margin was 8.6%, an increase of 3.1percent8.6 percentage points from Q2 2023 and Q1 2024, respectively. Non GAAP income from operations totaled RMB2.8 billion, climbing 31% from the same period last year and 193% quarter over quarter. Non GAAP operating margin reached 12 percent, up 1.6 percentage points from the Q2 2023 and Q1 2024, respectively. The rising operating margin was mainly due to our remarkable operating leverage, which lowered operating expenses ratio.

Speaker 3

BEST net income totaled RMB1.9 billion in Q2, showing a 46.2% improvement year over year and 339.8 percent quarter over quarter. Non GAAP net income reached RMB2.7 billion, up 13.9% year over year and 93.5% quarter over quarter. Moving to our cash flow and the balance sheet. We realized a net operating cash inflow of RMB4.8 billion in Q2. Niel Home DSO was 45 days in Q2, a testament to our effective risk management.

Speaker 3

On top of approximately RMB106,000,000 allocated to share repurchase during Q2, Our total cash liquidity remains at a high level of RMB75.5 billion, which excludes customer deposits payable. Overall, our Q2 results showcased our strong execution and ability to outperform the market in a stable market environment. Both our existing and new home business significantly exceeded market expectations. Moreover, our platform's overall monetization capability has remained stable with notable improvement in the monetization of new homes. We also saw a significant rebound in the contribution margin of our core business, moving parts of the one time effect of last year's high baseline in the Q1.

Speaker 3

Additionally, our non housing content services are rapidly based only. Both our home renovation and furniture and the rental business continue to achieve record highs in scale and revenue. We may change our commitment to cost efficiency and refined operational management. Despite double digit revenue growth, our GAAP operating expenses have remained nearly flat, both sequentially and year over year, leading to a substantial recovery with profitability. With our robust cash reserves, we will continue to increase shareholder returns through active share buybacks, further optimizing capital allocation and enhancing capital operating efficiency, sharing the benefits of our developments with investors.

Speaker 3

As of today, we had repurchased around $480,000,000 worth of shares, which accounts about 2.7% of the company's total share outstanding at the end of 2023. We have consistently delivered our funding to reward shareholders. Since the launch of our share repurchase program in September 2022, we have repurchased around US1.39 billion dollars worth of the share as of today, which accounts for about 7.5% of the company's total share of Xandli before the program began. Today, we are pleased to announce that our Board has approved the expansion of the existing share repurchase program. The amortization has been increased from $2,000,000,000 to $3,000,000,000 with the program now extended until August 31, 2025.

Speaker 3

Going forward, we will continue to reward our shareholders who have grown with us share the value created by the company. As our business becomes more diverse and expands in scale, we will continue to fortify our fundamental capabilities while actively and efficiently investing in our infrastructure. Our financial strategy remains committed to a prudent approach and focus on investing in areas that can generate the key business output and the long term value. For home transaction services, as we found our store network, agent and store productivity will remain our key evaluation metrics. We also optimize operational and the financial capability empowerment and the training for our platform partners to strengthen our middle to back office and vacancy in finance.

Speaker 3

Our new initiatives, we have built up middle to back office digitalization ability across the board to further improve the automation rate of our financial process as well as our data analysis and the processing capabilities. Simultaneously, we have assessed the higher requirements for contribution margin and other core financial indicators to advance the long term study and the strong development of our business. Our risk threshold control measures remained staunchly in place. This ensures the fees we plan to date will blast them so that we can share the rich fruits with our loyal shareholders. This concludes my prepared remarks for today.

Speaker 3

Operator, we are now ready to take questions. Thank you.

Operator

Thank Your first question comes from Harry Chen with Citigroup. Please go

Speaker 2

ahead. Congratulations, company, for quite a solid Q2 result and also thanks management for taking my question. So with lots of supportive poverty policies rolled out since the Q2, especially after May 17. While changes have occurred in the real estate market, do new home and existing home markets show divergent performance, How sustainable are transaction after these policies? And what is your view on transaction outlook in the second half of this year?

Speaker 2

Thank you.

Speaker 3

Thank you, Harry. Let me ask you a question. In Q2, the housing market saw steady month by month improvement, which is an actual boost to in home transaction volume since the new part introduced on May 17. Notably, the new home prices also saw a narrow decline in June. Although the new home market has yet to show any non signal improvement, the year over year sales decline in Q2 narrowed month by month.

Speaker 3

The significant market downturn in Q1 due to the higher base and the system factor has gradually faded. Market transactions continue to shift from new homes to existing homes. The proportion of national GTV from existing home transaction has increased from around 40% of total GTV last year to approximately 44% in the first half of this year. Now let me further elaborate. For the policy relaxation, continuing in the first half of the year, particularly after inventory reduction policy cycle began, particularly the May 17 policy package focused on reducing the housing industry, reviving existing homes under relaxing mortgage conditions with high tier cities continuously relaxing purchase restrictions.

Speaker 3

Regarding the existing home market, transaction volume in Q2 showed notable recovery. Volumes on bigger platform in May June increased month by month, outperforming the typical seasonal trend. The number of transactions in June raised the highest level of the same period since 2022 since 2020. This rebound was especially strong in the 1st tier cities, stimulated by fewer purchase restrictions and the relaxed mortgage conditions since the end of May. In June, transaction volumes in Tier 1 cities on bigger platform were 46% higher than in April and increased 132% year over year, especially in Shanghai.

Speaker 3

Shanghai we saw an increase of nearly 80% from April to June due to the extensive past easing, reaching the highest peak we have seen since early 2021. And for Tier 2 and Tier 3 cities, due to the prior rounds of policy relaxation, market response to this latest rounds of policy were relatively limited. Regarding the transaction structure, the demand for the home upgrade continue leading the market, especially in the 1st tier cities, where they make up 60% to 80% of transactions. While a notable feature of this market recovery is the increase in the proportion of home buying with the rising demand in key cities. Following housing price decline, the ratio of the housing prices to income has significantly improved.

Speaker 3

With lower down the payment ratio and the mortgage rates, housing affordability has substantially increased and the relaxed purchase restriction in turn attracted more first time buyers to the market. For example, in Shanghai, the proportion of non local buyers increased from nearly 30% to nearly 40% in June, and the buyers who are single increased by 6 percentage points. This policy has significantly stimulated demand relief within the target demographic. On home prices, we are also seeing the positive signs despite the ongoing price decline in existing home market. According to Baker Research Institute, the pace of non store demand declines in national existing home prices slowed in June, narrowing to negative 1.2% from the negative 1.7% in May.

Speaker 3

Prices also stabilized in Tier 1 cities. Housing prices in Beijing and Shanghai increased by 0.4% and 1.2% month over month, respectively, in June, and we also slightly improved the 2nd tier cities. Sellers also become more rational about the lowering prices. The proportion of the homeowners rushing to sell at a significant reduced prices decreased by 8% from March to June. However, most of the potential buyers are still in a wait and see mood, mainly hope to further price declines before entering the market.

Speaker 3

This market is a significant difference from the market response to the previous policy round in the second half of twenty twenty three. Although the Yifeng home market has become more active, there hasn't been a sharp drop in the housing prices. This suggests 2 things. Firstly, in high tier cities, abundant demand coupled with improved affordability and the lowering buying cost, is driving buyers out of our wait and see approach and into the active participation, which in turn sustains local housing prices. Secondly, the effect of these policies has been validated to some extent, given the cumulative impact of the relaxed policies over the past 2 to 3 years.

Speaker 3

New home market, the year over year decline in new home sales narrowed month by month in this Q2, but did not particularly improve overall. CRST indicates that the top 100 developers' sales grew by 42% year over year in the first half, narrowing to negative 22% in June. Several factors are demeaning the recovery of the new home market. Number 1, in the past, YixinHome have had the higher price impact than the new home. That is no longer the case.

Speaker 3

The price advantage of new home diminished. Number 2, presold housing supply couldn't meet demand in immediate housing needs number 3, the readily available supply of the larger and the more luxury new homes did not align with what homebuyers with the rising demand in the 1st tier cities were looking for. Number 4, the surprising flat of the nearly new homes, where it means the new home from a few years ago that are now entering into the single market, they are meeting more of the current market demand, giving the close match to the new homes, but with the advantage of the ready availability and the lower prices. With all of these factors at play, more positive forces are needed for the stabilization and the recovery of the new home market. Regarding the outlook for the second half of the year, starting from July, the volume of its new home transactions declined due to the combined effect of the policy impact, winning and seasonal summer factors.

Speaker 3

This factor of the policy lasted about 2 months. In 4th tier cities, the transaction volume in July remained about 5% higher in April, while year over year, there was still significant growth. Since last week of July, the transaction volume was over 30% higher compared to the same period last year. In July, the in home price continued to adjust, while the month on month decline in the 1st year city narrowed compared to the period before the policy implementation. For the second half of the year, as higher base effect diminish, the eastern home market is expected to remain stable.

Speaker 3

Transaction volumes in 4th tier cities are likely stabilized after a spike like recovery, providing some support for the prices as well. However, expectations for the further price drop and the buyer's cautious sentiment may still constrain the market recovery to some extent. Policy change will be a key variable in shaping market trends. On demand side, more meaning of the purchase use restriction and the optimization of the housing demand were halved, while the supply side additional measures to support developers and reduce inventory will help accelerate the marketing stabilization. Thank you.

Operator

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

Speaker 4

Thanks management for taking my question. My question is about our new home business. Can management comment about why our new home is doing better than the industry? Can we also comment about the alpha of new home and the trend about the monetization rate? Thank you.

Speaker 3

Thank you, Thomas. In the first half of the year, our new home business continued to a significant outperform in the industry, supported by our robust operational and execution capability. Our housing concession business continued to achieve our target of outperforming the market and consistently generate alpha. In Q2, our new home GTV reached RMB235.3 billion, down 20% year over year, but was up 55% quarter over quarter. PTV of CRRC's top 100 road developers grew by 35% year over year in Q2.

Speaker 3

In June, our new home's content volume increased by 12% year over year compared with the industry's 22% drop, notably outpacing the market. In addition, our revenue in Q2 surpassed past our GTV. This indicates, first, that we have not compromised our monetization capability to gain market share. On the contrary, our stable monetization capacity has been validated. 2nd, in a buyer's market, by helping downstream agents with better incentive for new home sales can facilitate more efficiency slow through in the current market.

Speaker 3

The certainty of our business momentum stems primarily from our channel service coverage function and enhance the sales through capabilities. In terms of the cooperation with the real estate companies, the relationship between brokerage channel and developer are setting the stage for a new and a new mutual beneficial model. Historically, both channels and its developer has a more competitive relationship. However, as the new home market becomes a biased market, selling home has been more challenging and the customer needs have changed substantially. The role of the sales channel in the industry transitioned from the simply make the deal to providing deep insights into the customer needs and collaborating with developers to address new home buyers' pain points.

Speaker 3

Driving this trend, we have been advancing our reach and evaluating the depth and breadth of our partnership with top tier developers. This year, we further expanded the coverage of core state owned developers and high quality leading real estate companies, better meeting their needs with innovative new home services. At the end of Q2, we doubled the number of developers we have strategically collaboration to 25 from 13 in Q2 last year. The sales from our strategic partners' developers accounted for 26% of our total new home GTV in June, 11 percentage points higher than the same period of last year. In June, the number of our cooperative new home projects accounted for 62% of all new home projects across cities where we operate, excluding Beijing and Shanghai, compared with 49% in the same period last year.

Speaker 3

Regarding our voltage sell through capacities, previously, we rely on our labor intensive approach. But this year, in part by the technology tools, we strengthened the refund operation and promoted the conversion of a potentially new home customer from the single market, continually boosting the new home sales growth. In terms of demand power, the number of the new home agents on our platform notably increased. This year, we responded the role of the comprehensive agents so that more agents can engage in both new and existing home business in parallel. For example, the number of the new home agents in Zhengzhou in 4Q2 was around 3x than what it was during the same period last year, Incentivized by more competitive commission rates and the improved timely delivery of preserved home, agents have increased awareness to engage in new home sales.

Speaker 3

Technology wise, we further iterate our potential customer product to help agents better identify high potential new home buyers who are likely to make a new near term purchase, While uncovering the potential new home buyers from these new home customers, accelerating new home customers' transaction efficiency. In Q2, potential new home customers identified by this product accounted for around 5% of our overall new home sales, contributing about 70% of the new home sales. Additionally, through our innovative service solution, like the chain of the old home to new 1, battery free repayments, battery free renovation and the home rental offering during the housing replacement will address diverse client needs surrounding new home calendars, improving the efficiency of the new home sell through. Thank you.

Operator

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

Speaker 3

Thank you for taking my question. My question is regarding the growth strategy of our transaction service. What's the emphasis on Lianjia and Lianjia, respectively? And how is the feedback from the store level so far? And what's the innovative in the cities where our business are quite stable?

Speaker 3

Thank you. Thank you, Eddie. This year, our cost strategy for home transaction business is promoting growth and building a harmonious ecosystem. In the first half of this year, we achieved notable results in scaling connected stores and exploring innovative models. In terms of the scaling of our agent and store network, by end of Q2, the total number of active non linear Jia stores on our platform increased to 38,900 and the number of active non linear Jia agents rose to 300,008,000 up by 6% and 2.8%, respectively, compared to the end of 2023.

Speaker 3

In the first half of this year, we added 48 new major brands. During this period, over 6,500 new stores were signed with our platform, averaging around 1200 new signings per month with a 6 month retention rate of 93% for these new stores. For newly connected stores, we provided fee discounts, installment plans and other support for those brands. We also added their operations with experienced store owners and tailor made integration plans. In terms of efficiency, 3 months after signing up, the productivity of agents in the new stores connected since last September reached over 80% of the productivity of the agents in the instant store on platform.

Speaker 3

Additionally, we have stores in some key cities enhance efficiency through refined operations, such as property inventory checks, quality home listing focusing, verification and reviewing. This was also aided by technology driven tools, including our AI housing matching and the smart home listening mechanism system. We're also seeing good returns from the investment in stores function. The new stores signed in Q4 last year have achieved a positive ROI as of June this year. 4 new stores opened in Q1 this year.

Speaker 3

The net revenue contribution in the first half of the year has already covered the estimated expenses. The continued scaling of our agent store network as well as diversifying our business from the housing transaction to 1 stop residential services have placed higher and more urgent demands on our platform This year, we further extended the coverage of the regional core governance council to 74 cities by end of Q2. By working with recommended service providers, we gather valuable suggestions for its rating platform rules, granting more power to store owners and agents in terms of the fitness and for the governance and fostering healthy industry competition. With Tianjia as the touching ground of our platform, we have explored a series of innovation in the agent store model to facilitate our transformation to one stop residential services. Focusing on improving agents' income, JinJia results a large store model.

Speaker 3

By the first half of the year, around 51% of stores had more than 18 agents, an increase of 5.4 percentage points from last year. Consequently, the attrition rate for the Yanjia agent decreased to under 4%. This success was also the result of Linxya's strategic approach on the large store model. Alongside the large store model, we are implementing the various store formats to better serve demand in different community settings. Shanghai and Jiafor instance, explore the different store types.

Speaker 3

Specifically, by leveraging low cost community convenience store that boost faster investment and the target coverage, Shanghai Lianjia increased its service density. By end of Q2, our coverage rate of the home listing in the operation areas in Shanghai increased to 87% from 76% during the same period last year. Simultaneously, we established the flagship stores with more home related elements, becoming gateways for 1 store residential services. In addition, we are exploring higher frequency community connections by brand crossover line stores. Among our ventures, we have launched store staff with agents who have home renovation expertise and banners completed by the display of the renovation process and the technique.

Speaker 3

This approach promotes early customer acquisition for our home renovation business and for this closer time with community. Regarding the talent development, Yanjia has segmented recruitment to 3 key areas, including college graduates, call sector professionals and the community experts. We offer a variety of programs to support newcomers through their initial growth period, helping to build a high quality team of the service professionals. Moving on to store management leadership. As a cornerstone of our 1 Body, 3 Wing strategy, Tianjin has also rolled out a leadership program for store operator designed to train well rounded management talent, specializing in residential services and promote the long term career development for the service providers.

Speaker 3

Thank you.

Operator

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

Speaker 5

Great. Thank you, management, for taking my question and congrats on the very robust result. And my question is on your non home transaction business, including the home renovation and the furnishing as well as the home rental business. I'm pretty glad to see that the contribution margin of the both business expanded year on year in the Q2. So may I ask on home renovation, what management key operating focus is for this year?

Speaker 5

And what is the progress so far? And on the home rental business, could you share some color on how we should look at the unit economics of this business line? And what is the key drivers behind the profitability improvement? Thank you.

Speaker 3

Thank you, Timothy. Let me answer your first question regarding the home renovation. Our home renovation business reached over RMB10 1,000,000,000 of the revenue last year with the standout performance in leading cities that validated our business capability and the model. This year, we are shifting our focus on building important infrastructure and capabilities. This includes upgrading our digitalized fundamental capability and the reinvesting process based on our HomeSaaS system as well as optimizing our construction delivery and customize the furniture delivery capability.

Speaker 3

Mid office digitalization is the artery of our entire home renovation business. It connects service providers and enable all home renovation and gifting to run smoothly under our continually refined and then standardized process. Implementing mid office digitalization through our home site system, We have accelerated this system to version 2.5 this year and are promoting it nationwide. So far, it has been successfully adopted in Beijing, Shanghai and Chengdu. HomeSaaS covers 5 major sectors: customer sales system, central control system, construction delivery system and the supply chain system.

Speaker 3

Compared to previous versions, HomeSats 2.5 mainly upgrades 2 modules, the Beam shared service center mid office module and the integrated material fulfillment module. Among them, the BIM shared subcenter mid office module has automatically generated price quotes for the renovation based on the standardized construction drawing from B, thereby improving designer efficiency and reducing error rates. All design and the construction data will be stored in the middle office system for future iteration. In terms of the material fulfillment integration, we have promoted the standardization of the product data and achieved online unified scheduling for various main material categories to increase the certainty of material delivery. Regarding the improving our delivery capability, we shortened the delivery time lines and enact the proactive maintenance of the construction delivery.

Speaker 3

This year, with the high order dispatch efficiency and streamlined construction process, we reduced the construction time lines. So combined construction period for basic construction and the main material reduced from around 111 days last year to around 100 days in this Q2. We also implemented proactive maintenance service nationwide. We now provide free maintenance and repair to customers' at home at the 5th and the second 22nd the month after the construction. To address the common issue like wall cracks, our goal is to detect and repair them earlier.

Speaker 3

In addition, our up sales team has grown from over 200 by the end of last year to more than 400 people by June this year. And we enhanced our capability in customized furniture delivery. By setting relevant standard and enhancing training, we improved the success rate of one time installation to around 80% in the first half of this year. The home renovation process is complex as it involves a wide range of personnel and diverse products. Transforming the industry cannot be accomplished through a single breakthrough.

Speaker 3

It requires continuous development of various capability across middle office utilization, project delivery and product development. In the long run, this endeavor will eventually bring about high quality change. Regarding second question for our revenue business, in Q2, revenue from the big rental service reached RMB3.19 billion, increasing by 167% year over year and 21% quarter over quarter. This growth came from the rapidly increasing number of home units that we managed and operate. Under our carefree rent module, we are managing over 300,000 units by end of Q2 compared with over 240,000 last quarter and over 120,000 at the same time last year.

Speaker 3

The number of units managed on our centralized long term apartments has reached over 14,000 at the end of Q2 compared to over 7,000 in the same period last year. In terms of our carefully run model, we improved our business unit economy. We provide service offering to address tenants' major pain points, such as home maintenance and the rental change to enhance our service quality, while providing timely and high quality response to Taino's issue. This led to a roughly 20% decline in customer complaints in June compared to the beginning of the year. We meaningfully improved the leasing efficiency and cut vacancy costs through the following efforts.

Speaker 3

Number 1, on the product front, we have been consistently expanding the coverage of our new home our new product model since last year, which increased no vacancy period. This share increased about 6 percentage points in Q2 from Q1, reaching 26%. This effectively reduced the vacancy costs and enhanced our resilience against the rental price change. The preparation of this type of product model will continue to increase in the future. Number 2, the success rate of the first time rentals of the commencement of our property management contract increased from 82.2% in Q1 to 86.6% in Q2.

Speaker 3

And the amortized compensation cost per unit also decreased. Number 3, as we advance our carefree rent model, our operational focus has shifted from the first time rentals to re renting the same property. Focusing on leasing, renewal and the pre sale rates, Our business process is divided into the different stage with proactive intervention before the leasing ending. This increase the turnover rate of the re rented property from 3.1% in Q1 to 3.9% in Q2. And the time required to rent out a property for the 2nd time decreased from 9.8 days at the end of Q1 to 7.5 days at the end of Q2, accelerating the rental efficiency while lowering the vacancy cost.

Speaker 3

Number 4, we also build up rental capacity through the dedicated positions and improve the productivity. We have strengthened the dedicated rental agent, nurturing stable rental channels by leveraging top performing agents with strong commitment and capacity in territory rent. We also established a dedicated team of our car managers for more tenants rental occupancy, achieving the greater efficiency in business speed, utilization and targeted rental of the key listings, while reducing the vacancy rates. The productivity of our car managers in facilitating renting out improved from an average of 8.8 units per month at the end of Q1 to 10.2 units per month at the end of Q2. In Q2, the proportion of the combined rental opportunity by dedicated rental agents and account manager go to 6%, an increase of 6 percentage points from Q1.

Speaker 3

Beijing also achieved breakeven in the first half of the year by manager accounting on the city level. By end of June, the number of units managed by the capital revenue in Beijing reached nearly 76,000 with our occupancy rate of 98.2%, despite scaling up the number of properties under management, which has led to a front leading of various costs. We achieved good evening in Beijing. This has substantially increased our confidence with the business. Thank you.

Operator

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

Speaker 1

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

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Earnings Conference Call
KE Q2 2024
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