On the evening of March 16th Beijing time, before the US stock market opened,$Kimball Electron(KE.US) released its 2022 Q4 financial report, with the following detailed points:

1. Platform model assists KE to overcome difficulties again: Due to the peak of the post-epidemic transmission in Q4, and the greater impact on the high-line cities advantages of KE's self-operated Lianjia, "Lianjia's self-operated stock house GTV plummeted by 17% year-on-year, performing weaker than the industry average. However, the GTV of entered stores grew against the trend by 24%, making the overall GTV of stock houses 359.9 billion yuan, instead, a year-on-year growth of 1%." The Dolphin Team believes that entered stores are more dispersed, rhythm and intensity impacted by the epidemic are slower, and low-line city policies were relaxed more quickly and powerfully in Q4. In addition, repairs of second-hand houses were quicker than high-line cities, which are the main reasons why the GTV of third-party stores performed better than Lianjia.

However, KE can obtain lower commissions from transactions dominated by third-party stores, therefore, in this quarter, "the actual revenue of the inventory house business still declined by 12%, to 5.28 billion yuan," "8% lower than the market expectations."

2. Optimizing new housing cooperation objects finally yields returns: In early 2022, KE actively raised the threshold for cooperation housing enterprises, with state-owned housing enterprises taking priority. The growth of the company's new housing turnover has been weaker than that of the industry average. "But due to the long-term slump in the real estate market, state-owned housing enterprises with slow turnover and healthy debts have gradually shown relative advantages, with smaller declines in turnover and earlier rebounds."

Therefore, in Q4, KE's new housing GTV was 263.5 billion yuan, and the year-on-year decline narrowed to 26%. This performance was stronger than that of the top 100 real estate enterprises, whose sales amount decreased by 29% year-on-year, and 6% higher than market expectations. At the same time, after one year of cooperation with state-owned housing enterprises, "the commission rate for new housing business is no longer eroded, this quarter was 3.1%," only a slight decrease of 0.1pct compared with the previous quarter. They achieved an income of 8.28 billion yuan, 10% higher than market expectations. Cooperation with state-owned enterprises has also changed from KE's "disadvantage" to an advantage.

3. Home decoration business continues to grow, with ambitious goals for next year: Besides the above housing trading intermediary, the home decoration business can be said to be the company's most promising incremental space. This quarter, the revenue of the home decoration business was 2.09 billion yuan, a quarterly increase of 13%. The contribution of new business revenue accounted for 19% in Q4, and it was rapidly growing. According to the Dolphin Team, the company’s target GTV for home decoration business in 2023 is over 10 billion yuan. It is evident that the management sees considerable growth potential.

4. Does Q1 guidance indicate that the recovery is coming? The company guides that the total revenue in Q1 will be between 18 and 18.5 billion yuan, with a year-on-year growth rate of 43.4% to 47.4%. Compared with the revenue decline year-on-year in this quarter's financial report, the company is quite optimistic about the recovery of housing turnover in Q1. Statistically, since March, the growth rate of new housing sales area in the top 30 cities has rebounded to 30% year-on-year, while second-hand house sales have rebounded by more than 80%, indicating that the real estate market has indeed ushered in a "small spring" after the Chinese New Year. 5. After overcoming the hardest obstacles, the profit margin has somewhat declined, but it's still considerable: Beike's gross profit this quarter was CNY 4.09 billion, a YoY increase of 40%, beating market expectations by about CNY 600 million. Its gross profit margin also remained at 24.4%, although it did decline compared to the astonishing 27% margin of the previous quarter.

However, upon closer examination, the abnormally high gross profit margin of the previous quarter was mainly due to a one-time favorable occurrence of expense reversals. Moreover, this quarter, the proportion of third-party stores in Beike's existing home business increased, which led to a structural decline in gross profit margin. In reality, the gross profit of new house operations and emerging business is still increasing on a QoQ basis, thus the overall gross profit is steadily rising.

In terms of expense, after overcoming the toughest quarters, with the expectation of a recovery in the housing market, the company's expenses have slightly increased on a QoQ basis but remained relatively restrained. Marketing expenses saw the largest QoQ growth, although only increasing by less than CNY 80 million. Furthermore, the company has a certain demand for marketing in order to promote its second track business.

Finally, despite changes in income structure, the decrease in one-time benefits, closure of stores amid the pandemic, and slight increase in expenses, Beike's operating profit margin for the quarter was 2.3%, a significant QoQ decline, but its actual operating profit of CNY 380 million was still much higher than the market expectation of CNY 65 million.

Long Bridge Dolphin's view:

Although the market is not particularly concerned with Beike's Q4 performance due to the impact of the pandemic, several key points can still be extracted from this financial report: 1) Beike's platform model does help the company mitigate risks by diversifying from a concentration of self-operated stores in large cities, 2) After cooperating with state-owned real estate companies, Beike's new home business growth has transformed from trailing behind the industry to leading it, and 3) After overcoming the most difficult period, the company's expense control and profit release have indeed marginally declined. However, the number of the company's stores and brokers are still decreasing on a QoQ basis and after the clearance of production capacity, if the housing market continues to recover, the company still has room to further release its profits.

Aside from this quarter's performance, whether the domestic housing market can continue to recover in the long term is the key factor affecting the company's stock price. Currently, both the industry's overall data rebounding significantly after the Spring Festival, and Beike's guidance on a year-on-year revenue growth of over 40% for the first quarter indicate that the domestic housing market has indeed experienced a small upturn. Furthermore, the strength of the rebound in Beike's existing home inventory is stronger than that of new housing. Therefore, the market's sentiment towards Beike will continue to be positive in the short term. However, it is still crucial to observe the sustainability of the recovery in the future.

As for the outlook for the entire 2023 housing market, the management's answer is neutral and cautiously optimistic.

If you're interested in learning more, or would like to obtain minutes of the company's performance meeting, please add WeChat ID "dolphinR123" to join the Dolphin Investment Research and Communication circle to exchange investment ideas together. Interpretation:

The text discusses the Q1 financial report of a company named "贝壳". The report is analyzed in detail and it is concluded that the company's performance in the real estate market is the most crucial factor in determining the stock price. The report highlights that the real estate market has been showing signs of recovery since March, and the company has provided guidance on revenue growth for Q1, which indicates that the management is optimistic about the future. The report also mentions that the company's platform model has helped it overcome the difficult times, and the company's performance in the secondary market has been better than the industry average.

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Q1 Financial Report Analysis:

I. Real Estate - the largest and most important beta of Beike

As the domestic housing transaction data in the fourth quarter has already been publicized and does not have a guiding role under the influence of the epidemic, for the market, the performance in the fourth quarter is more of a retrospective. The degree of recovery of the domestic real estate market after the Spring Festival, and the company's views on the real estate market in the first quarter and beyond are the most critical factors that affect the stock price of Beike.

According to third-party statistics, since March, there has been significant recovery in the transaction area of both new and second-hand houses, with a year-on-year increase of nearly 30% in new house transactions and a continuous year-on-year growth of more than 80% in second-hand house transactions. It can be seen that the recovery of the real estate market after the Spring Festival has been quite strong.

At the same time, the company's guidance on revenue growth in the first quarter is as high as 43.4% to 47.4%, indicating that the management has also clearly felt the warmth.

II. Existing stocks - platform model helps the company overcome difficulties again

Although the transaction of second-hand houses in China showed signs of recovery during the fourth quarter, unexpected control measures and subsequent epidemic peaks have caused the market's expectations for the final transaction volume to be not high. Therefore, Beike achieved a transaction scale in the existing stocks of 359.9 billion yuan this quarter, a performance that is surprisingly not a decline, but an increase of 1%, which is better than the market's expected decline of 2%.

Compared with the industry average, the turnover area of second-hand houses in major cities tracked by Dolphin Jun (especially the high-line cities such as Beijing, Shanghai, and Hangzhou) has shrunk from 15% in the fourth quarter to only 9.5%. It shows that Beike's ability to grow positively is far beyond the industry's performance. Specifically, the second-hand house GTV completed by Lianjia (Beike's self-operated) in this quarter has declined by 17% compared with the same period last year, but the turnover of third-party intermediary stores led by the platform has grown against the trend by 24%, which is the main reason for promoting the overall growth of GTV.

Combined with the company's disclosed decline in store numbers in the fourth quarter, Dolphin Jun believes that the high-line cities where Lianjia is located were affected earlier and more severely during the outbreak, while the more dispersed third-party intermediary stores may be less affected. At the same time, the recovery of second-hand houses in low-line cities was better than that in high-line cities, and these two factors may be the reason why the GTV of third-party stores grew significantly better than that of the self-operated Lianjia in the fourth quarter. The actual situation can be expected to be further explained by the company in the conference call.

However, because in transactions led by third-party stores, the company can only record revenue as platform fees and commission (while self-operated businesses can earn full income). Therefore, although the overall GTV is growing positively, the change in revenue structure means that the actual revenue of Beike's existing housing business in the fourth quarter still decreased by 12% to 5.28 billion yuan, which is 8% lower than the market expected.

Breaking it down, the platform service fee charged for settled stores is about 900 million yuan, a year-on-year increase of 29%, matching the growth of third-party GTV; the commission income from the main self-operated business this season has declined by 17% year-on-year to 4.38 billion yuan.

Similarly, due to the increased proportion of third-party store businesses, the overall commission rate for Beike's existing housing this season also dropped to 1.5% on a month-on-month basis. But this is mainly due to changes in revenue structure, not actual commission rate declines (previously there were rumors that the government would limit the upper limit of agency commissions, but subsequent measures were not implemented), so it is not a big problem.

Overall, due to Beike's unique platform business advantages, it helped Beike to diversify the risk of chain-owned Lianjia stores mainly concentrated in large cities and safely passed the peak of this epidemic. It could be said to be the best proof of Beike's platform value.

Third, new housing business: actively shrinking, negative turning to positive

Since early 2022, in consideration of the safety of real estate developers' repayment, Beike has raised the threshold for cooperation, giving priority to developers with state-owned backgrounds, and its new housing business performance has been weaker than the industry average in terms of transaction volume.

However, with the prolonged depression of the real estate market, the slow turnover and healthy debts of state-owned real estate developers have gradually demonstrated relative advantages, and their proportion of new home transactions has gradually increased. Therefore, cooperation with state-owned enterprises has also changed from Beike's disadvantage to advantage.

In the fourth quarter, Beike achieved new housing GTV of 263.5 billion yuan, a year-on-year decrease narrowing to 26%. In comparison, the sales amount of the Top 100 real estate companies during the same period decreased by 29% year-on-year. State-owned real estate developers repaired first, also allowing Beike's new housing GTV to exceed market expectations by more than 6%.

After optimizing cooperation with real estate developers for nearly a year, Beike no longer has a lower commission rate for new housing businesses due to the stronger bargaining power of state-owned enterprises. The commission rate for new housing business in the fourth quarter was 3.1%, only a slight decrease of 0.1% month-on-month. Therefore, the new housing business achieved revenue of 8.28 billion yuan in the fourth quarter, a year-on-year decrease of 27% consistent with GTV trend, and 10% higher than market expectations.

IV. Home furnishing business continues to grow and is expected to become the second track?

In this quarter, the home furnishing business, which is regarded by the company as the second track with high expectations, achieved revenue of 2.09 billion yuan, a quarter-on-quarter increase of 13%, although the growth rate does not seem to be astonishing. However, considering the impact of work stoppages during the epidemic period, and according to the Dolphin learned that the company's target for home furnishing business in 2023 is very high (it is said that the GTV target exceeds 10 billion).

The GTV of other businesses outside of home furnishings is 21.7 billion yuan, a year-on-year increase of 3.6%; the revenue is 1.09 billion yuan, an increase of 152% year-on-year. According to the management explanation, this is mainly due to the continued decline in the size of the financial lending scale with large scale but low profit in other businesses, but the proportion of higher rental business realization rate has increased.

V. The proportion of new businesses is gradually increasing

Overall, the company's revenue in this quarter was 16.7 billion yuan, far exceeding the guidance of the 14.5-15 billion yuan in the third quarter of the company, and higher than market expectations of 15.8 billion yuan. Specifically, due to the change in the 1P and 3P structure of the existing housing business, the financial income did not meet expectations. The main reason was the transformation of new housing business from slower industry growth to stronger than industry growth, which prompted the overall revenue to exceed expectations.

From the revenue proportion, it can be seen that the proportion of new business sectors has reached nearly 20% in the fourth quarter, and the scale cannot be ignored. Next year, home furnishing and rental businesses are expected to become the main driving force for Beike's excess growth.

VI. Passed the toughest test, is the company reinvesting?

On the gross profit front, Beike achieved a gross profit of 4.09 billion yuan this quarter, an increase of 40% year-on-year, which is about 600 million higher than the market's expectations. Although it is not as amazing as last quarter (there was a one-time benefit of cost rebate in the last quarter), the gross profit margin still reached 24.4%.

Looking at the deconstruction, except for the contribution of gross profit margin decreased from 34% to 30% due to the one-time benefit in the previous quarter, store costs and other costs continue to be streamlined.

Looking at the segments, 1) the stock housing business is mainly due to the change in the proportion of 1P and 3P income, and the impact of losing one-time costs to return. The contribution of gross profit margin has decreased slightly from the high point to 37%, but it is still comparable to the levels of 1Q and 2Q in reality, and the gross profit margin of the stock business as a whole is stable.

The gross profit margin of the new housing business has steadily increased for three consecutive quarters. It has increased from 18% in the first quarter to 26% in this quarter. It can be inferred that due to the gradual stability of cooperation between the company and national housing companies, the commission rate has stabilized, and the commission paid by the company to channels or employees has also decreased, which is the reason for the continuous increase in the contribution of gross profit margin.
Due to the increase in the proportion of heavy operation and low profit businesses such as home improvement and leasing, the contribution of gross profit margin of emerging businesses has continued to decline in the first few quarters. But after the period of the base period of the merger, the gross profit margin no longer drops month-on-month, and stabilizes at 28%. Mainly because the contribution gross profit margin of the home improvement business itself has also increased from 28.9% in the second quarter to the current 29.9%.

The reduction of company costs can also be seen from the operating data. Although Beike's housing turnover GTV has rebounded for two consecutive quarters year-on-year, Beike's stores and brokers are still decreasing. Beike platform respectively decreased more than 880 stores and about 9,000 brokers compared with the previous quarter. Therefore, the proportion of store costs and employee commissions in revenue continues to decrease. And as the number of stores decreases and transactions rebound, the average performance of individual stores or brokers continues to improve, which is a typical example of improving efficiency by reducing excess capacity. As long as single-store transactions continue to rebound this year, the company's operating leverage can continue to be released, and expenses still have room to continue to decline.

Seven, overcome the most difficult period, expense rebounded slightly

However, after overcoming the most difficult second and third quarters, with the rebound of the real estate market, the company has also successfully reversed its losses. At the same time, there is no longer the favorable expense reversal it received last quarter. Therefore, the cost of the company increased slightly from the previous quarter, but still remained at a relatively restrained level.

Specifically, the proportion of the three expenses to revenue has all increased slightly from the previous quarter, but the absolute value of the expenditure is basically the same or slightly higher than the previous quarter. Among them, marketing expenses increased the most (but still less than RMB 80 million). The company still has a certain demand for marketing to promote its second track business.

Therefore, in the context of changes in income structure, one-time favorable factors disappearing, stores being closed in Q4 due to the pandemic, and slightly increased expense input, the operating profit margin of Beike this quarter was 2.3%, a significant decrease from the third quarter, but it still achieved an operating profit of 380 million yuan, which was much higher than the market expectations of 65 million yuan.

Dolphin's Previous Research on Beike:

Financial Report Season

December 1, 2022 Conference Call "Beike: No Significant Improvement in the Real Estate Market, Focus on Driving Broker Efficiency and Income (Conference Call Summary)"

December 1, 2022 Financial Report Review "Beike Strives to Increase Profits by Reducing Fat"

August 24, 2022 Conference Call "How Beike views the real estate recovery in the second half of 2022 (Meeting Summary)". On August 24, 2022, Review of Ke.com's Financial Report: "It's Most Important to Grow"

Telephone Meeting on May 31, 2022: "Housing Transaction Business Suffers Huge Setbacks, Emerging Business Continues to Develop (1Q22 Ke.com Telephone Meeting Minutes)"

Review of Financial Report on May 31, 2022: "Deep Freeze in the Real Estate Market, Ke.com Can Only Hold on"

Telephone Meeting on March 10, 2022: "Beyond the Brokerage Business, Ke.com Wants to Strengthen Home Decoration and Home Services (Telephone Meeting Minutes)"

Review of Financial Report on March 10, 2022: "Escape from Real Estate? Ke.com is Defying the Trend"

In-depth

June 30, 2022: "The Real Estate Market is Coming Back to Life, Can Ke.com Take Big Steps Forward Again?"

December 27, 2021: "Is the Real Estate Market Recovering? Should We Invest in Ke.com? Let's Wait a Little Longer"

December 17, 2021: "Muddy Waters Shorting Ke.com? Their Brief Report is Not Carefully Written"

December 15, 2021: "From 'Revolutionizing the Industry' to Being 'Revolutionized', Can Ke.com Handle It?"

December 9, 2021: "The 'Rebellious' Ke.com: Whose Life Did They Revolutionize, and Who Is Their Savior?"

Risk Disclosure and Disclaimer for this Article: Dolphin Research's Disclaimer and General Disclosures