KE Holdings Inc. (BEKE) CEO Peng Yongdong on Q2 2021 Results – Earnings Call Transcript

KE Holdings Inc. Q2 2021 Earnings Conference Call August 11, 2021 9:00 PM ET

Company Participants

  • Matthew Zhao – Director Investor Relations
  • Peng Yongdong – Co Founder and Chief Executive Officer
  • Tao Xu – Executive Director and Chief Financial Officer

Conference Call Participants

  • Liping Zhao – CICC
  • Piyush Mubayi – Goldman Sachs
  • Steven Tsai – Morgan Stanley
  • Ashley Xu – Credit Suisse


Hello, ladies and gentlemen, thank you for standing by for KE Holdings Inc Second Quarter 2021 Earnings Conference Call. 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, Mr. Matthew Zhao, IR Director of the company. Please go ahead, Matthew.

Matthew Zhao

Good evening and good morning everyone. Welcome to KE Holdings Inc. or Beike’s second quarter 2021 earnings conference call. The company’s financial and operating results were published in the press release earlier today and are posted on our company’s IR website,

On today’s call, we have Mr. Peng Yongdong, our Co-Founder 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 Beike’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. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB.

With that, I will now turn the call over to our Chairman and CEO, Mr. Peng Yongdong. Please go ahead, sir.

Peng Yongdong

Thank you, Matthew. Hello, everyone. Thank you for joining us our conference call today regarding our performance in the second quarter of 2021. This our first earnings call since the passing of our visionary Founder and the Permanent Chairman Mr. Zuo who was also referred to as Lao Zuo throughout the industry. And there have been the most significant events that took place in the second quarter of Beike. We mourn his loss not only because he has been a founder who set a mission for our company, but also because he has such and he is far rational leader and sheer pleasure who asked for us to explore the future and create value for the housing industry. Lao Zuo has been an invaluable asset to Beike and the highest contribution and an influence. You can see the way, the organization with a clear focus on promoting industry progression, targeted decisive actions as an industry practitioner and he was a true leader who had urged us to recommend the more meaningful questions like how we can change the industry and how we create a value for cost consumers and the society.

Lao Zuo has inspire us to self-improve the visionary and positive changes infuse value in everything we do and always do the right things despite the difficulty. In memory of Lao Zuo, we will continue to make dedicated efforts to fulfill our mission to providing admirable service, joyful living. We are deeply grateful for and motivated by the condolence and the support we received following Lao Zuo’s passing. We also appreciate Lao Zuo’s family for their trust to the management by granting the revocable POA of the voting rights of their Class B ordinary shares for the company by way of partnership to which Miss Xiaohong Chen and myself serve as initial partners, Lao Zuo’s family, together with executive directors and committee members have also agreed to one year voluntary share lock up of their holding. After Lao Zuo’s, we fully understand our goal and we will rise to face a challenger and we will continue to create value for our consumers, service providers, employees and shareholders.

Turning to our business operations. Let’s first look at take a look at the micro policy and market environment. In the past quarter, regulatory authorities will praise their views and opinions in various areas, such as an anti-trust and data security. And they issue a series of policies and guidance opinions in multiple industries. During this period, we have been honored to have multiple opportunities to communicate directly with relevant government authorities and have gained their recognition and respect for our efforts to improve the industry throughout in our interactions.

At the same time, we have the opportunity to look internally and engage in self-reflection and introspection. As a result, we have further solidified our ongoing belief that our business model would not be feasible without the benefits from being in such a great country and in this great era. As we move forward, we will continue to reflect our thoughts on the two key questions, namely, how we can change the industry and how we can take more social responsibilities? Regarding the housing industry, recently, many cities and regions have introduced various home cooling measures such as loan quotas, price caps, purchase restrictions, and mortgage interest rate hikes, all in an effort to help stabilize housing price, land price and market expectations.

These measures have begun to effectively skew the rapid expansion of the housing market in various cities. The past of existing home sales grew in many cities started to slow down since May, singularly the beginning of a market correction cycle, and a more stabilized growth period for the company, the rapid development of China’s economies over the past 30 years, super-fast growth in new and existing home sales, as well as demand for home renovation services, with over letting and interconnected web of the growth among segments in a time with more balanced housing demand and supply and more stabilized market speculation for property price.

We expect three major structure trends and opportunities including the industry’s focus on shifts from houses to customers and from transactions to services and demand from consumer has moved from home purchases to high quality living in the housing industry, relatively new efficiencies continue to persist with overall low user satisfaction and the lingering problems such as lack of standardization, digitalization and the internet penetration. In light of this, we do not expect short-term market or corrections to affect continue long-term demand for housing consumers aspiration for more joyful living conditions. Our journey over the past 20 years tell us, there are market corrections create opportunities for quality upgrade, strategic thinking and the further development to improve competitive advantages in the future. In 2008, we introduced comprehensive scientific management for our organization. In 2011, we spearhead authentic listing. In 2014, we initiated our national wide expansion and in 2017, we launched the platform strategy. Whenever the industry goes through a transformation phase, we ask ourselves if the industry will be the same with or without Beike and make decisions from a long-term perspective.

Clearly, the industry would not be where it is today without this market corrections and the advancements that have followed. During the industry inflection, we again, looking inward, like what do we have been doing over the past 20 years to seek strengths and explore opportunities to wisdom market, volatilities and create lasting future value, we will prove to the market that we are building a capable, sustainable, and a socially responsible enterprise that upholds uplifting culture. And we aim to create value for consumers and our industry despite the plateau market. We will add [Indiscernible]. We believe we can generate more and more values in the housing domain. We hope our long-term commercial values that are built around hope will continue to bring one stop shop quality housing services for the 300 million parts families in China.

Next, let’s look at our business progress in a second quarter and the first half of 2021. The number of stores on our platform increased to solid 52,858 in a second quarter, representing 25% year-over-year growth. Approximately 30% of new stores opens from our current store owners, the number of store with our trailing 12 months GTV over RMB50 million [Indiscernible] accounted for 37% of the total stores, an increase of 10% quarter-over-quarter. In the first half of 2021, the two year – of GTV per store, for total stores and a third party connected were 13.3% and 15.1%, respectively.

As we shifted our focus in a second quarter to talent retention of the peak recruiting season. In first quarter, we grow the number of agents by 20% year-over-year to 448,000. The agent attrition rate in connected stores on the platform dropped to 8.1% in the first half of 2021 from 9.6 in the first half of 2018. The enhanced store management and agent retention, we have 45% of connected stores to fulfill more than 30,000 store assistant positions. In the first half of 2021, we implemented agent spa initiatives for agents on our platform, which has improved agent satisfaction and retention.

In a second quarter according to our survey, the number of agents that are feel safe to walk on the platform with honors and compliance to platform rules increased 12% compared with that by the end of 2020 average MAUs including our MAU on platform apps and re-channel meeting programs reached 15.21 million in the second quarter, up 33.5% from which same period last year, as we continue to improve our brand recognition.

Turning to our existing home transaction services. According to Beike Research Institute, nationwide GTV of existing home transaction market in the first half of 2020 increased by 41% year-over-year and decreased by 8% compared to the second half of 2020. In comparison GTV of existing home transaction on Beike’s platform rose to RMB1.33 trillion in the first half of 2021, representing 17.1% growth year-over-year, while GTV of existing home transactions of connected stores increased by 89.6% year-over-year, reflecting our resilience during the early stage of the market downturn.

In a fast growing market, agent tends to focus on closing deals. A market downturn, however, provides a better environment for us to rectifying management and enhances quality and efficiency. At the end of June 2021, we opened 287 contracts service centers in certain major cities in China so that more customers can enjoy enhanced ambience and transaction security during the signing process; we continue to promote our agent specialization strategy. As of June 30, 2021, of our agents specialization strategy has covered over 61% of stores in ’21 of the 30 all cities we operate in. In the second quarter, transactions completed collaboratively by specialized agents on our platform accounted for 40.4% of total transactions in stores that are implemented this strategy, a 7.7% increase from the first quarter, which indicated more frequent collaborations among our agents.

Most notably, in Shengdu, 21.7% of transactions are completed collaboratively among specialized agents. And installed efficiency increased by an average of 17% by the end of second quarter comparing with stores not implementing specialization strategy. We also continue to develop new products to empower the agent to our platform. For example, we are testing a new application name [Basing Impact] which we piloted in Shanghai in the second quarter. Basing Impact is a digital interactive tool to have agents interacts with customers presenting structure and a visualized information at a glance on large pay screen when they are communicating face to face. Basing Impact significantly promoted standardized agent operations and enhanced offline information and Associates, relying overall customer interaction done but 29% and accelerating the process of building mutual trust between agent and customers.

With these benefits, by the end of second quarter over 30% of agents have adopted Basing Impact as their main offline service tool in Shanghai. Whether it’s back from new home transactions, according to the National Bureau of Statistics GTV of new home transaction market in the first half of 2021 increased 39% year-over-year and was down 13% compared to the second half of 2020. In this context GTV of new home transaction services reached RMB841.7 billion in the first half of 2021, up 77% year-over-year and the GTV of connected stores increased by 85.4% year-over-year.

During the past quarter, we continue to enrich online content for new homes. By the end of June, we have enrich online content for all new home projects on our platform with a minimum of 100 description fields completed for each new home listings. As part of our commitment to providing authentic and comprehensive housing information, we also added a model describing our favorable factors of a new home projects facilitating more informed purchasing decision. We are also making steady progress with our new home business conduct improvement plan. We also endeavor to offer commitment to developers, including no customer journey hijacking, no customers snatching, no bribery, no collection of consumer funds, and no fake in advisory.

As of June 13th, 97.4% of our partners’ developers enter into [Indiscernible] commitment agreement with us.

Moving to our emerging services. In early June, we were surreal to announce the acquisition of Shengdu home renovation. We first act into the home renovation industry in 2019 with the launch of our home renovation brand, Beiwoo, as we continue to deepen our understanding of this industry. We have developed an even stronger belief in a vast growth potential of China’s home renovation market. The home renovation industry is of considerable size, approximately RMB7 trillion in total. However, there is scarcity of high quality services providers and a lack of industry standardization and scientific management.

As a result, it is difficult for the industry participants to effectively scale earn profits. And they have to fight for survival in the industry, incapable of meeting consumers increasing high demand for quality. As housing transactions shift from new homes to existing homes, the industry customer base also changes from new homebuyers to existing home buyers, and residents in existing home adding more complexity and costs for conventional renovation companies to acquire customers. Despite the industry backdrop, Shengdu is one of the very few high quality companies in this industry, founded in 2002, and headquartered in Hangzhou, Shengdu has a long operating track record and a large customer base in Eastern China, along with our experienced management team and a significant industry know how, in addition, as one of the earlier practitioners of the full service module in the home renovation industry in China. Shengdu itself is only in marketing and products, but also in supply chain management and execution.

We have strong management and [Indiscernible] internal control. Shengdu promotes the core value of taking good care of customers. We strongly resonates with ours, the existing home market become more active consumers demand for high quality products and the service increase and the technically empowerment grow, we believe that the industry is not now at critical turning point. By seamlessly integrating the rich experience of Shengdu team in the industry, with our customer acquisition capabilities, self-developed standards, data infrastructure, and our belief in the product to promote development through vertical penetration and the horizontal expansion. We are looking forward to making a difference for consumers and our service providers and home renovation industry.

At the same time, our new house home renovation service Beiwoo home renovations, which is being published as a minimum viable product and maintain robust growth in Beijing. They were completed 834 home renovations in the second quarter, an increase of more than tenfold year-over-year. R&D is also a top priority. And if we continue to make key investment to upgrade our technology for further streamline our process and enhance digitalization. For example, in the second quarter, we launched Home SaaS system, version 1 that provides support for modules sales being designed, delivering supply chain and a middle office management, further enhancing the end-to-end standardization and digitalization of our home renovation service.

In summary, Beike is a firmly upholding and supporting China’s policy. And a local regulations opening, housing is for living, not for speculation. As we are also cooperating with regulatory authorities in this mentoring false listing and discouraging speculative purchase which helps stabilize the enterprise housing price and the market expectations and promotes the steady and healthy development of housing market. According to a Beike Research Institute, which credit tighten and control measures, such as price caps in various regions, overall home sales, I expect to slow down further in the second half of 2021.

Our 20 years’ operating history has proven that our market with balanced supply and demand provides the best foundation for our company’s long-term development. With our mission of promoting admirable service, joyful living, and our founding principle to pursue a better industry structure, we will take on more social responsibilities. We will empower agents and host friendly environment for communities. And we are committed to helping younger generation with affordable living through rental and other innovation solutions. We strive to fulfill more social responsibilities with our long term goal to have industry progress, thereby creating long-term value for the broader communities. Without noting, we are approaching the first anniversary of Beike’s US IPO. I still remember the nature – for the entire Beike family on the listing day last year. I mentioned in the letter, that all institutions have their own ups and downs, the current institution during glorious moments, a stronger and more capable, it will become whether in difficult times, looking back, the capital markets have been volatile in the past year, and the went through webs of fluctuation. As with the news of all this ups and downs, we are more firmly believe believing in the power of our mission admirable services, joyful living.

We will continue to always look inward for search for new areas of improvements, create values for our society as our outputs and stay strong and optimistic all the time. Thank you all very much.

With that, I would like to turn the call over to our CFO, Tao Xu for closer review on second quarter financials. Thank you.

Tao Xu

Thank you, Stanley. Thank you all for joining us. I would like to provide a brief overview for the second quarter of 2021 initial results. Before, we discuss financial results I’d like reiterate what we mentioned in the last few calls and the Q1 earnings. Since our business operation has been seriously negatively impacted by COVID-19 operation in Q2 of last year. A meaningful portion of transaction has been shipped to Q2 of last year. We suggest that investors to look at and compare our financial performance as a whole for the first half of 2021 versus first half of 2020 to better reflect our programs. Therefore, I will discuss both Q2 and the first half financial performance here.

Our net revenue increased by 20% to RMB24.2 billion in Q2 from RMB20.1 billion in the same period of last year, exceeding both high end of our guidance and the street consensus. The increase was driven by the total GTV growth of 22.2% to RMB1.2 trillion in Q2 from RMB1.03 trillion in the same period last year. For the first half of 2021, our net revenue increased by 64.6% to RMB44.9 billion from RMB27.3 billion in the same period last year driven by total GTV growth of 72.3% to RMB2.3 trillion from RMB1.3 trillion in the same period last year.

In particular, on net revenue from new home construction services increased by 4.9% to RMB9.6 billion in Q2 from RMB9.2 billion in the same period of last year, primarily attributable to 11.7% increase in GTV of existing home transaction to RMB652 billion in Q2 from RMB583.5 5 billion in the same period of last year.

For the first half of 2021, our net revenues from existing home transaction services increased by 57.9% to RMB19.8 billion from RMB12.6 billion in the same period of last year, driven by a 70.1% increase in GTV of existing home transactions to RMB1.3 trillion from RMB779.2 billion in same period of last year.

Our net revenues from new home transaction services increased by 31.9% to RMB13.9 billion in Q2 from RMB10.5 billion in the same period of last year, primarily attributable to an increase of 32.3% in GTV of new home transactions to RMB498.3 billion in Q2 from RMB376.6 billion in the same period of 2020.

For the first half of 2021, our net revenue from new home transaction services increased by 70.4% to RMB23.8 billion from RMB14 billion in the same period of last year, driven by 70.7% increase in GTV of new home transaction to RMB841.7 billion from RMB493.1 billion in the same period of last year.

Our net revenues from emerging and other services increased by 50.6% to RMB0.7 billion in Q2 from RMB0.4 billion in the same period of last year. The increase was primarily attributable to the increase of penetration level in the Company’s financial services around the housing transaction services, and an increased number of home renovation units completed through the Company’s platform. For the first half of 2021, our net revenues from emerging and other services increased by 68.9% to RMB1.2 billion from RMB0.7 billion in the same period of last year.

Cost of revenues increased by 38.6% year-over-year to RMB18.8 billion in Q2 from RMB13.6 billion in the same period of last year.

Gross profit was RMB5.3 billion in Q2 compared to RMB6.6 billion in the same period of last year. Gross margin was 22.1% in Q2, compared to 32.5% in the same period of 2020. The decrease in gross margin was mainly because, one, market in Q2 of 2021 had more ordinary performance compared to the same period of last year, as a significant portion of transactions, especially existing home transactions, shifted from Q1 to Q2 of last year due to the COVID-19 pandemic, resulting in a high base of gross margin in that period. Two, in Q2 of 2021, existing home sales market was affected by a series of market-cooling measures that led to a relatively lower contribution from existing home transactions revenues to total net revenues of the company, resulting in a lower total contribution margin compared to the same period of 2020. Three, the proportion of new home transactions completed by connected agents and other sales channels increased in Q2 compared to the same period of last year, resulting in a lower new home contribution margin in Q2.

For the first half of 2021, gross profit increased by 43.9% to RMB10.1 billion from RMB7.1 billion in the same period of last year.

Operating expenses were RMB4.2 billion in Q2 compared to RMB3.3 billion in the same period of last year.

General and administrative expenses were RMB2.2 billion in Q2 compared to RMB2.0 billion in the same period of last year, mainly due to an increase in share-based compensation expenses.

Sales and marketing expenses were RMB1.1.2 billion in Q2 compared to RMB788 million in the same period of 2020, mainly due to the increase of the online and offline advertisement and branding campaigns as well as the increase of headcount in business development personnel.

Research and development expenses were RMB775 million in Q2 compared to RMB524 million in the same period of last year, mainly due to the increase of headcount in experienced R&D personnel and increased share-based compensation expenses.

Total share based compensation expenses were RMB436.2 million in Q2 compared to none in the same period of last year. Income from operation was on RMB1.1 billion in Q2 compared to RMB3.3 billion in the same period of last year.

Operating margin was 4.6% in Q2 compared to 16.3% in the same period of last year, primarily due to the relatively higher gross profit margin in the second quarter of last year as we discussed gross profit. And less operating expenses incurred in that period due to travel and offline events restrictions. For the first half of 2021, income from operations increased by 28.6% to RMB2.1 billion from RMB1.7 billion in the same period of last year.

Excluding non-GAAP items, our adjusted income from operations was RMB1.7 billion in Q2 compared to RMB3.4 billion in the same period of 2020. Adjusted operating margin was 6.9% in Q2 compared to 17.1% in the same period of 2020. Adjusted EBITDA was RMB2.6 billion in Q2 compared to RMB3.8 billion in the same period of last year.

For the first half of 2021, adjusted income from operations increased by 64.6% to RMB3.2 billion from RMB2.0 billion in the same period of last year.

Net income was RMB1.1 billion in Q2 compared to RMB2.8 billion in the same period of last year. Excluding non-GAAP items, our adjusted net income was RMB1.6 billion in Q2, compared to RMB3.0 billion in the same period of last year. For the first half of 2021, adjusted net income increased by 68.8% to RMB3.1 billion from RMB1.9 billion in the same period of 2020.

Net income attributable to KE Holdings Inc.’s ordinary shareholders increased by 5.6% to RMB1.11 billion in Q2 from RMB1.05 billion million in the same period of 2020.

Adjusted net income attributable to KE Holdings Inc. was RMB1.6 billion in Q2, compared to adjusted net income attributable to KE Holdings Inc. of RMB2.9 billion in the same period of last year.

For the first half of 2021, adjusted net income attributable to KE Holdings Inc. increased by 68.7% to RMB3.1 billion from RMB1.9 million in the same period of last year.

Diluted net income per ADS attributable to KE Holdings Inc.’s ordinary shareholders was RMB0.93 in Q2, compared to RMB2.12 in the same period of last year.

Adjusted diluted net income per ADS attributable to KE Holdings Inc.’s ordinary shareholders was RMB1.37 in Q2, compared to RMB2.23 in the same period of 2020.

Additionally, as of June 30 2021, the balance of our long-term cash items may include in long term investments amounted to RMB8.8 billion or US$1.4 billion.

During the second quarter, a slew of city-specific policies and the severe market-cooling measures were rolled out in order to effectively stabilize the land price, home price and market expectations. We expect the second half of this year to be one of the most stringent periods in past decades. In terms of unprecedented condition such as intensifying of policy launching, the variety of supply and the number of regulatory involved.

From supply side, street wire lines to developers to rail lines to financial institution, concentrate line auction into state underwriters price for homeless impact both new home and new home transaction from the [Indiscernible] mortgage practices and the – approval period has a significantly extended transaction cycle. While insurance of reference price and the purchase of distribution has led to cooling down of consumer expectations. Those matters will promote stable and the house abandonment of the rails market is a long way, while sell will also bring the short losses and as a result raised by the real estate market will cool down moderately in the second half of this year.

In the face of this challenge, we formally uphold those policies and measures and support government’s crackdown on housing speculation in some [Indiscernible] city to stabilize the market. We believe the longing for the joy of living and better housing creates a form the amount of bonds or customers. We have experienced several times of market ups and down in past two decades. Nevertheless, the company always becomes better and stronger with a pass through those cycles. This is also the root cause why the economy [Indiscernible] so well today. According to Beike Research Institute nationwide GTV is in home sales market is – to fall over 40% year-over-year in the third quarter. We will advance our agents specialization strategy, using homes sale sectors to ensure more business opportunities are available to our agent, incentivize and support the owners to introduce multiple benefits in an effort to smooth out marketing cycle disruptors to agents income, under written – in the industry. Meanwhile, nationwide GTV of new home transaction market is 85% year-over-year in the third quarter with a quiet and the purchase curves because five.

We will continue to invest in under develop professional new home agents, improving business conduct and enriching online content for new home sales sector. We believe there is market, and it stabilize of rounds of measures issued as well as increasing sales through demand from developer in the traditional peak season, opportunities are still sufficient in new sales, new home sub sector for us in the second half of this year. Based on about this ratio, looking forward to the third quarter of 2021, we expect our net revenue to be between RMB14.5 billion and RMB15.5 billion, representing a decrease of approximately 24.6% to 29.4% from the same quarter of 2020.

This forecast considers the potential impact of the recent real estate related policies and measures, and the Company’s current and preliminary view on the business situation and market condition, which is subject to change. Nevertheless, although our top line growth guidance has been slowing down, many due to external circumstances, we are confident that our strong growth due to collaborative network we uphold in quality services and the input agency will help us to continuously outperform the market. The foundation to pursue the downside depends on the face of the team. Whether we believe we have ability, we tend to call, whether we believe that the key to our professionalism will eventually prevail, whether we believe the spirit of – will drive us out of the parking space. This kind of space is what really matters in difficult time.

Meanwhile, based on about mentioned the market change, and our decades of experience of going through several market downturns as well as strong sense of mission to take on more social responsibility, the second half of this year will continue put our efforts into companies infrastructure and emerging business. We will increase our support for agents to incubate them standing out in the industry and the go through this difficult time to grow them. We will also contribute the more value to society by speeding up our exploration in home renovation and the furniture business and applying our efforts in running total housing services for young people in new cities drivers. Therefore, we recently oversee set away welcome at the moment investment into our new business development in the second half of this year.

In summary, although our performance cannot go against the market general momentum new structure, we feel strongly believe it will allow us momentum in our prospectus. We will focus on those factors and minimize external influence matches to noise and market volatility. We believe it is our fundamental value rather than external circumstances. That is the key to continued success of Beike, compare to our near term financial performance we devote more efforts in developing and investing in our long term capabilities, even though it might take time to achieve financial returns on investment.

In fact, the longer the case, and the more difficult it is, the more likely it is likely that we become. That concludes our prepared remarks. We would like now to open the call for questions. Operator, let’s go ahead.

Question-and-Answer Session


[Operator Instructions]

First question comes from Liping Zhao of CICC.


Good morning, Stanley and Tao Xu. My question is related to the commission rates. There were some rumors circling around market saying that there might be some limit on the agent commission rate. So how should we expect? What’s new from management and how should we expect the commission rates in coming quarters? Thank you.


Thank you, Liping. This is Tao regarding recent rumors. There have been lots of rumor about taking home sales commission rate recently, especially a WeChat moments screenshot, which was widely circulate in social network group, so we called the rumor was sent by a junior person from a parasitic broker company, which is doing is skipping over in Shanghai, which was a false news with ulterior motives. Meanwhile we have been in close communication with relevant authority and actively reporting related issue to them. The clear response from the Ministry of Housing and Urban Rural Development is that so far there’s no such information in restricting housing transaction commission fee. I hope makes this clear. So I know we’re also reducing the roads to market is a very different with K-12 education sectors with a different intention from the regulator. Being a fair and the public service is the key to education sector while the housing for living not for speculation is a key for the housing sectors. Therefore reducing building long-term mechanics and in housing market to content housing price from excessive hikes is the goal rather than continue housing transaction and related services.

Just to give additional housing price aim to surprise wells banks and a wide impact of people’s livelihoods and consumptions of other recent policy aimed at supporting long term housing growth of the population and improvements in the property structure. Under stable housing price and long term supply demand of finance market will enable wider range of consumer to live better and continuously improve their living conditions, which is a solid foundation of sustainable and the house growth of population. Therefore, we believe a market environment which is benefit for Beike’s long term development remains unchanged.

In summary, as I mentioned this point several times I want to make clear again, the commission rate reflect the service quality, production efficiency and the service commitment. Charging a reasonable rate without party service commitment is the old proposition is like water without sauce and the tree without roots. Going forward, Beike will continuously revise our infrastructure and agent’s protection training over more subsidies to support organizes store developments and agents’ education in order to bring more value to the industry. We believe it’s the overall commission rate on our platform will remain relatively stable. Hope this clarifies.


Next questions come from the line of Piyush Mubayi from Goldman Sachs.


Thank you for taking my question. Your company’s been through 20 years in the real estate market in China and been through multiple cycles. We’d be grateful if you could take us through some of the past cycles that you’ve been through, and how long it has taken you to come out of those cycles from a negative growth rate to a positive growth rate. And if you could spell that through on a quarter by quarter basis, how long can the quarter be – how many quarters can be negative growth rate be before you come out? Based on let’s say the last two or three cycles. That would be very useful for us to better understand. And while we completely understand that you’re in sync with the government objective for pricing and price stability in the market, if you could just go through where the vulnerable clients have been where the volumes have declined very sharply, and where those points will start to stabilize i.e. we start to see no more no further declines coming through. And if you could take us through where you are in Shenzhen in the last quarter or next quarter, that would be great. Thank you.


Okay, so, Piyush, because this first half is the very booming season in ’21 so after overcoming first quarter and the crisis starts to tighten in the second quarter and a mini regulator policy were introduce in some pretty safe like Shenzhen, which has led to a start of the market downturn. For the second half of this year we expect the overall market to continue cooling down kinds of we recently foresees property market will be under more pressure in Q3 compared to Q2 and the last Q4. In terms of credit supply with respect to regulation to remain tight in the second half of this year, resulting in continuously rising mortgage rates, further extend the loan approval. And the lending cycle. For existing home sales market, which by the way, will be largely affect in this Q3 by quite – and other regulations such as the reference price cut, picking fact, causing overall existing home sales market GTV in the second half to slow down.

And in terms of the new home sales market, Q3 as a traditional season coupled with impact from the long restriction and insufficient in new home supply, we believe the new home sales might slow down quarter-over-quarter in this Q3 but it would recover in this Q4 supported by the seasonal stress. We expect second half GTV for the new home sales market to be by 10% year-over-year both market, developers will be more reliant on the broker channels in second half of this year, given the slowing down of existing home transaction, which add to difficulties in developers customer acquisition. So [Indiscernible] we have a 20 year history, we have undergone at least seven times, market cycles and up and down. So I want to invite our Chairman, Stanley to give some color on this for further elaboration.


Yes, this Stanley, this is Danny, let me to answer your question in terms of the cyclical trend and how we view those kind of cyclical impact to our business.

When we, IPO we actually have been discussed a lot with investors in terms of how we can view our business cycle right whether we should look at that in a quarterly basis or in the annually basis or in the even like three years basis. We truly believe the three years is pretty much like a cyclical which is more represents of our business cycle.

I think in terms of our business momentum, so a lot of say the analysts and investors is not quite understand that is why we facing the first cycle after our IPO. So the people do feel unsafe on that. So for me, I can explain that more details in terms of those kinds of volatility, right. So when we look at each of the, no matter which city of which industry, they all have their own growth path, right. So we look at the unit the material reality in more macro of the models for our business. For example, in Beijing city there are roughly like 8 million to 9 million of the existing homes. And if we look at the turnover rate is around like 1% is normally represents it’s a low level in the industry and 4% normally represents is more like a highly traded of the market. So that actually also to be matched with scalability within that kind of market.

For the normal conditions, normally we think for the Beijing is about 25,000 of the transaction volume per month will be a more normalized of the level if we look at a certain period, which is significant it’s a part of those 25,000 volumes is the halting prize actually will hack very quickly and then followed by that the transaction volume will also will be follow.

So, in summary seeing each of the cities we have so called very normalized of the transaction volumes and if the transaction volume significantly has been surpassed or lower than those kind of the market normal condition, surprise will have real follow by that to have a significant changes, when we look at the three year cycle normally the first year and the second year. So transaction volumes were relatively stable, but if there is a certain period, suddenly we see some of the transaction volume increase followed by the price increase, and then the price will significantly increase compared with the first two of the years. Normally, it will be much higher than 8% of the level which is pretty much in line with the GDP growth right. So what we normally monitor is approaching to the third year of every cycle, the price will significantly increase and then the transaction volume also will be impacted by that. So the authorities will be normally will have certain kind of measures came out with those kind of situation and in order to cooling off of the price hike. So when we look at the overall trend industry in the three year cycle, normally it will be more like a very stable of the overall transaction volume and with normalized the price condition in the market.

So that is why in the past decades we look at a similar kind of pattern in the year of 2008, 2011, 2014 2017 and now is a 2021. So approaching to those kind of year end will facing like a cyclical of the challenge, but there has two of the characteristics I want to mention here as well, right. So, firstly, the housing price normally will remain in relatively stable in a relatively long time horizon but will continue goes up more orderly based on those kinds of demands. And secondly the material reality in those kinds of cities or areas also will be changing followed by the material reality of the market. For example, like maybe in the past of the cycle 1% will be the stable level but now may change to the 2% or even higher. In US this year we look at the 3.5% to 4% of the turnover rate by the – I mean the price still relatively stable so that will be a very strong symbol for materialize of this kind of industry.

So I want to reiterate what we have been mentioning in the prepared remarks. So we think in the end, we truly believe in the housing industry the biggest key role from the government’s perspective is remains the housing is for living not for speculation, right. So the purpose behind that is definitely related to the stable price, but the stable price doesn’t means it will be not increasing, it’s more rapid than for the stable increasing, right. So it’s not implied and impact of other and brings other social matters. So we have the example in the history, for example, like in Beijing, the last cycles of bring the very serious matters is because of Beijing’s housing price actually has been up 62% within the 16 month time. And for Shanghai, it also the same kind of trend is the housing price up to 65% within 18 months times, so after that it’s all bring the – brought by the various theories of the measurement from the regulators. So that also very good testament, right, we truly abide for this industry, the biggest political and the biggest thing is how we can remain the whole industry, especially the housing price stable, and if we are not abide, if we’re not against this kind of trend, definitely we believe we can take a benefit on that. And those kinds of supply and demand a balanced market. It also will be the best of the environment for the Beike for the development.

So I can give you more examples in terms of how we can pass through all those kind of the cycles and make ourselves stronger, right. So as I mentioned, in my prepared remarks, like our journeys over the past 20 years, tell us market corrections always created the opportunities. So, if you look at our experience, normally in the second year, when we experience those kind of cycles, so we can create of some of the new initiatives, and they’re doing the right thing, even if it is difficult, right, for example, a lot, the cycle in the 2008 and after that 2009 we introduced a comprehensive scientific management, right and after 2011 cycle in the year 2012, we promoted authentic leads teams, and after in 2014 cycle in the year 2015. We initiated our national wide explorations are in search, right, so, and every time we go through the cycle, as I mentioned, so we always think about two things as a priority.

So first thing is whether we already has been done, all the things we have been done and whether we are worth of what we truly believe ourselves, right? Whether we are good enough to create value for the customers. And every time our answer is we can do better, right. So that’s the first thing is we always consider. And second thing is during those kinds of cycles that gave us opportunity, how we look at the long term, in a more deep nature, right and make us as more and more believe of those kinds of long term – will bring the long term benefit back to the company. So in the year of 2021, when we are facing this cycle, we also has more sinking around of the long term items, for example, right, the services behind of the whole of the housing topic and the renovation services as well as how we can bring them all social values when the companies become stronger and bigger and how we can repay back to the local community. So that’s all the thinking and the considerations that brought us for these cycles.

So that’s why this year when we look at the Shenzhen case, right after the Shenzhen has been cracked on, as well as other things bring a new rational of the market for Shenzhen. And meanwhile, we also looked at the survey from the overall new home market, right, this year’s overall, the transaction volume has been up 30% and the average of the price for the new homes in China also has been surpassed RMB10,000 per square of the level, right, so that’s all bring enough of the reasons for the authorities, continue to apply some of the measurements to make sure of the stable, of the overall real estate market as well as a stable of the housing price. So again, when we talk about the housing prizes it’s not, it doesn’t means whether the house price will not go up, but behind that we truly believe is more like a moderate growth and with moderate expectations, so all the things behind the whole philosophies will be quite important to, I mean I’ll see the long term of the policy condition for the industry.

And meanwhile, we also mentioned there are a lot of rumors, right, whether this, for example, like agents industry should be continued to exist or whether will have the further pressures et cetera, but we truly believe those kind of rumors will be the totally nonsense right. So, as far as we can continue provide the value to our customers as well as our platform participants. So definitely, we can continue to bring the value to the communities, especially those kind of the supply and demand balance market with very stable of the housing price is also the best of the environment for the Beike for the demand. So we will continue support of those kinds of policy and continue to create value based on those kinds of marketing environment. Thank you. So that’s all the philosophies and my thinking behind your questions. Back to you, operator.


Next questions will come from Steven Tsai of Morgan Stanley.


Thank you for taking my questions. My question is related to the liquidity issue and concerns that some of the top developers and some smaller ones are facing. So how should we size the potential impact on the account receivable rates of our new home sales business? Maybe how much of that provision you have recognized on your branches so far? If this issue persists and escalates, would that affect the new home commission rates of our new home distribution business going forward? Thanks.


Okay. Thank you, Steven. For our collection, the strategy is very healthy. If we look at the DSO copy in 2018, 2019 and 2021, our GTV of new home increased from RMB201 billion to RMB746 billion and to RMB1.4 trillion respectively, but our DSO were 117 days, 96 days, and 103 days, respectively. So you’ll see even the total top line year-over-year were doubled but our DSO continuously dropped, especially in this Q2, the GTV of the new home is almost RMB500 million, but our DSO both improved to 292 days. The reason behind that is that company has stringent revenue recognition criteria for new home sales. The company evaluates its total payment rate for developers thoroughly and recognizes the revenue for the high risk developer on cash basis under CSOX accounting standard. That is we do very prudent revenue recognition. The company also adopts diversified measures to ensure the payment collection safety including adoption of the litigation preservation and other necessary measures and we see continuous improvement in the accounts receivable collections.

In this year, we reasonably foresee some reference they may encounter some difficult time, and some of them will identify the high rate developers. I will not mention the name at this moment, our platform and I can share with one number is a total receivable from the so called high risk developer. Accounts receivable we reduced from RMB1.5 billion to around RMB800 million. But as of the second quarter, so everything continues to improve. And also I want to share impact, we are currently offer service for more than 7,000 projects and more than 240 developers across country by end of Q2, and the concentration rate is for exist housing and the top 10 developer that comes around our 25.5% of transaction volume, and the from the top 100 developer that comes around 63%. So we have a very low degree of business concentration under the better risk for a single developer is relatively low. And also I want to share with you is the question is also ready to our view to overall new home sales market trends. And I think recent restriction further increase existing home protection will ultimately impact new home’s US market. In order to improve the potential consumer conversation and a cash collection, the developer there are more and more allow taking resources and inventorying through the channel sales such as Beiwoo. So the higher the amount of channel sales from developer will ultimately drove Beike growth for our new home existing service into certain culture and from Beike internally. We say as cash is the king we put in tremendous efforts to pause for the product verification and ensure all of the cash and will be collected in time. Thank you.


The next question comes from Ashley Xu of Credit Suisse.


Thanks management for taking my questions. Two from me; the first thing is about some initiative from some local governments to establish and websites where they require the brokers to upload authentic listings to that website is still ongoing efforts. So early stage but just want to check on management view on how such efforts could potentially impact the way Beike functions or works. And second question is on regulations front, mainly both in anti-trust and also data security. How those regulations impact Beike? Thank you.


Thank you. Yes, we do, where some of news regarding the 12 months presumption in Shenzhen. They have so called short life the property platform. First I need to – I want to clarify the system. This regular egovernment Information System is not so called platform to do the transaction business. The key goal for this upgrade of the ecommerce system is to obtain the first time information on property listing to effectively carry out regulation as a frontline watch tower to prevent the market from volatility, actually this is announcing new addition to Shenzhen over not its other cities who are living in urban service also have the same practice and points on being Hamzah where see they have the similar function and feature on their systems. This is just not the new thing.

Regarding work of which new system or new format emerging, our key focus will always be better customer experience transaction efficiency and whether the listing price is authentic. Our underlying operating logic is highly consistent with this so called egovernment system because it is well quarterly involves of some authentic listing and facilitate cooperation among agents. This is also in language our ACNP Council we say, they say it’s a culture of transparency, collaboration and shared success and we in past decades waiting and see we introduced and demonstrated 2018. So while those companies rely on the simplicity and not mentioned convenience here to just the skipping orders will [Indiscernible]. There’s quite obviously who will benefit and who will face the challenges. We believe the long term system will promote the competition in the industry? So we’re not worried about this and we are fully upheld and support on this.

Your second question is for antitrust. Okay. Regarding the antitrust, first, we would like to clarify again; the news from routers related to pay for two months ago was fake news. And currently, the company is not under any formal investigation related to antitrust issue, especially after we finally submit our self-inspection report. Like other 33 platform companies make. Beike consistently operate within the bounds of laws, regulations and rules will always prioritize the interests of user and a spare no effort to achieve the winning results through the cooperative mechanism. When you say, we are committed to promoting the housing department of industry evolves in solving inauthentic property listing and just striving to be an outstanding and confident in full compliance with the rules and regulations.

The good thing is a source is a round of frequent communication with government authority, and the state of administration for market regulations as a corporate citizen, while even more determined to take social responsibility as a top priority. At the same time, the government also gained a better understanding of Beike’s business model, and our contribution we have meant to help industry grow and iterate in past 20 years. In addition, our diligence attitude in handling the self-inspection and other related matters, and the efforts and the contribution we make to industry progress were well recognized by the authority. For example, our investment brands of RMB700 million initiative for brand of beta offers affordable and quality rental services for the young generation living in a large and the middle cities. And have created more social value for the local communication. One of its projects has been featured and reported by CTV News, [Indiscernible] on 31st, which demonstrates highly recognition from the authority. Okay, I hope this clarifies a question.

Thank you. We’re now approaching the end of the conference call. I’ll now turn the call over to your speaker host today, Mr. Matthew Zhao for closing remarks.

Matthew Zhao

Thank you, operator. Thank you once again everybody for joining us today. If you have any further questions, please feel free to contact Beike’s investor relation 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.

Source: KE Holdings

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