Beike: Second-hand housing shows a year-on-year improvement trend, while new housing continues to be under pressure

Below is the summary of BEKE's first quarter financial report conference call in 2024. For the financial report analysis, please refer to " "Strong Medicine for a Serious Illness, Can Beike Make a Comeback?" 》

I. Review of Key Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Q&A Analyst Interaction

Q: Recent market activity and trends? How do you assess the transaction volume trend in the second half of the year?

A: Although second-hand housing prices are still in the process of adjustment, the overall transaction volume is relatively stable, with some cities performing better than expected. This makes us relatively optimistic about the subsequent transaction volume of second-hand houses. At the same time, we see that the new housing market is indeed facing more challenges, and with the direction of destocking policies becoming clearer, we expect that the new supply-side liquidity will improve, boosting market confidence further.

In terms of policies, policies can be divided into three categories: 1) further releasing and attracting purchasing power, such as the cancellation or optimization of purchase restrictions in cities like Hangzhou, Chengdu, Shenzhen, and the recent removal of the lower limit on mortgage rates; 2) digesting existing inventory through trade-ins or government acquisitions; 3) optimizing new housing supply by restricting the supply of residential land in areas with high inventory.

The introduction of policies has a certain supportive effect on the second-hand housing market. Despite the GTV of the second-hand housing market since the beginning of 2024 not reaching the high base brought by the release of pent-up demand in Q1 of last year, the month-on-month trend has been relatively stable. From the transaction recovery in the small spring of March and the normal seasonal decline in April, the platform's second-hand transaction volume in April did not experience a rapid decline compared to the same period last year, with a year-on-year growth of 14%. Cities such as Shanghai, Shenzhen, Nanjing, Hangzhou, Changsha, Wuhan, and Xiamen have shown relatively significant increases.

Looking at the recent trends, weekly transaction volumes have not continued to decline month-on-month. In the first three weeks of May, the platform's second-hand transaction volume increased by over 20% year-on-year, and transaction value increased by over 10% year-on-year, surpassing the level of decline from the high point last year. On the other hand, second-hand housing prices are still undergoing deep adjustments, and the market is in a state of trading volume for price. The absolute value of viewings in April was higher than the average of last year, indicating that customers are still looking to enter the market. The monthly and year-on-year stability of the top 50 cities since the beginning of this year has not shown a surge after the relaxation of policies last year, indicating a more rational mindset among the public.

In terms of transaction structure, the proportion of essential needs and first-time homebuyers has increased from 30% to 35%. After housing price adjustments and policy implementations, the threshold for essential needs customers seeking housing due to children's education and household registration has lowered; at the same time, due to insufficient effective supply of new homes and the trend towards luxury housing, some first-time homebuyers have been squeezed out of the new housing marketThe new housing market continues to show a weak and sluggish state of supply and demand, with the sales amount of the top 100 real estate companies in Ke Rui 1-4 months down by 47%, reaching a historical low. The demand for new homes continues to show improvement and characteristics of a large customer base. Data from China Index Academy shows that the proportion of four-bedroom and larger units in key cities has increased from 21% to 25%, with other types of demand shifting to the second-hand market. On the supply side, developers are adopting a pro-cyclical strategy, reducing land acquisition and new project launches, resulting in insufficient new effective supply in the new housing market, while inventory remains high. According to Ke Rui data, as of 24Q1, the average time to sell new homes has extended to 24.4 months.

Q: Regarding the diversified online customer acquisition strategy?

A: One of the key directions we have been exploring this year is the infrastructure and business flow construction of the online client. We have introduced new online roles for service providers, including live streaming housing consultants, to help them build personal IPs and attract user engagement. One of our initiatives is the establishment of the "Galaxy Plan" to cultivate platform store owners into new media influencers, helping them attract customers through personal live streaming on external platforms. Currently, the Galaxy Plan covers 63 cities nationwide, empowering over 12,000 individuals, with influencer fan base exceeding tens of millions, including over 600 agents with fan bases exceeding 10,000. By Q1 2024, the Galaxy influencers have generated over 2,000 transactions through new media customer acquisition, a 103% increase from last year's Q1.

Q: Focus and measurement of investment in the core business? Will the increase in new online connected stores affect the company's efficiency?

A: The main focus of the core business this year is on the growth of quality and efficiency, actively connecting with more high-quality brand stores and agents. We have been actively promoting store networking since September last year, with the number of active stores increasing by 1.4% by the end of Q1, and over 1,000 new signed stores, including those under construction, by the end of Q1. The retention rate of new connected stores within 90 days remains at around 98%, indicating a continuous increase in our market penetration, especially with significant growth in cities like Ningbo and Yantai.

In terms of measuring effectiveness, although the average number of staff per new connected store is lower than that of inventory stores, it has steadily increased with a rapid efficiency improvement. From September last year to March this year, within six months of operation, the cash income of new connected stores increased by about 100%. Furthermore, by the end of March, these new connected stores achieved an efficiency of over 90% compared to platform inventory stores. Additionally, in new connected stores, some small-scale stores, such as couples' stores with about two people, have about 16% higher efficiency in the first three months of networking compared to the average efficiency of new connected stores during the same period. These highly competitive small stores inspire us to further connect various types of stores, enhance the platform's service capabilities for them, and conduct more refined hierarchical management and operations of stores. Our overall investment in store expansion has also yielded good returns. From the platform's perspective, the ROI of stores signed in Q4 2023 was positive by March this yearIn supporting the investment strategy for scale growth, we are also very cautious, more based on industry support, such as providing support for entering the storefront decoration business development, rather than simply increasing staff, to ensure the flexibility of investment and the streamlining of business.

Q: Outlook for the new housing business?

A: Although the overall new housing market is under pressure, the GTV of new housing in 24Q1 reached 151.8 billion yuan, a year-on-year decrease of 45%, but better than the market average; new housing revenue was 4.92 billion yuan, a year-on-year decrease of 41.5%, with a relatively small decline, demonstrating our monetization capability during a market downturn.

Achievements in channel coverage: The number of signed developers for the overall strategic cooperation of new housing increased by 20% year-on-year, and the quality of cooperation continues to improve. We have reached strategic cooperation with 6 out of the top 10 enterprises in the Top 100 real estate companies, including core large state-owned enterprises, which helps us actively expand our regional business.

Breakthrough in cooperation terms: It not only includes past strategic traction, but also includes guarantee clauses for payment guarantee, ensuring better cash collection for the new housing business.

Channel coverage and destocking capability: In Q1, our project coverage rate reached 55%, a 25% increase from the same period last year, providing us with a more stable supply of new housing sources. In terms of channel destocking capability, we have explored innovative product service models such as selling old homes to buy new ones through linking first and second-hand businesses, and launched worry-free and cost-effective decoration services based on customer needs, linking developers, banks, and other resources to promote new housing sales and solve customer housing purchase problems.

In operations, we strictly adhere to the bottom line of risk control. In Q1, the accounts receivable turnover days for new housing were 69 days, with the proportion of projects participating in Fast Commission remaining at a high level of 46%, and the proportion of income from state-owned developers at around 50%.

Q: What is the impact of the old-for-new policy on Beike? How does the company participate?

A: Currently, we see that related supporting policies are still in the formative stage, such as the central bank providing 300 billion yuan in rediscounting to support local acquisition of some commercial housing for affordable housing, and the scope and effects of policy implementation need to be observed. More than 60 cities have introduced old-for-new housing policies, which can be generally divided into intermediary priority sales models and government-led models, the latter including subsidy distribution, or the acquisition of old houses by state-owned platforms or developers.

The intermediary priority sales model involves real estate companies signing agreements with homebuyers, with intermediaries promoting old houses and homebuyers locking in new house sources of interest. As early as 2022, we pioneered this old-for-new model in Qingdao with local developers and platforms, bringing innovative transaction practices to the local government. Other industry associations have been inspired by and referenced the Qingdao model for promotion. In 23, we completed nearly 200 transactions in Qingdao using the old-for-new model, activating customers who may have been dormant under this innovative model. This model is now called "Wuyouhuan" and has been implemented in 12 cities nationwideQ: What are the highlights and latest developments of the home decoration business?

A: In Q1, the home decoration business achieved a contract amount of 3.39 billion yuan, a year-on-year increase of 26%, and revenue of 2.41 billion yuan, a year-on-year increase of 71%. Among them, the total contract amount in March was 2 billion yuan, a year-on-year increase of 53%; the contract amount in Beijing in March reached a historical high; the proportion of contract amount contributed by agents in the first track in Q1 reached a historical high. Thanks to the improvement in capabilities and stronger delivery capabilities at the backend. The core driving force is the integration of the first and second tracks. After aligning the organizational structure for 23 years, all home decoration business units have partnered with first-track stores, allowing customers to obtain decoration plans before property transactions.

In terms of delivery capabilities, the company's management delivery cycle reached about 104 days in the first quarter, a decrease of about 18 days compared to the same period last year. This year, while ensuring steady business growth, we will focus on improving quality. Through one-stop butler services and online butler quality control, we plan to prevent problems in advance, reduce the frequency of incidents, and increase customer satisfaction.

The revenue of the house leasing service in Q1 was 2.63 billion yuan, a year-on-year increase of 189.3%, benefiting from the increase in managed scale. The managed housing source scale of "Worry-Free Rent" exceeded 240,000 units (over 90,000 units in the same period last year), and the scale of long-term rental companies exceeded 11,000 units (7,000 units in the same period last year). The occupancy rate of the "Worry-Free Rent" model was 96.5%, an increase of 2.7 percentage points year-on-year; the rental rate of self-operated apartments below 6 months increased by about 3.8 percentage points to 94.8% compared to the same period last year. By increasing the coverage of low-risk "Worry-Free Rent" models and clearing out a batch of long-term vacant properties, we have significantly reduced vacancy risks.

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