BEKE-W(02423) Q4 performance meeting: Q4 revenue increased by 20.6% year-on-year, exceeding the upper limit of performance guidance. The performance of new home business was significantly better than the market.

On March 14th, BEKE-W (02423) held a performance meeting for the 2023Q4. Beike introduced that in Q4, revenue increased by 20.6% year-on-year to 20.1 billion yuan, exceeding the upper limit of performance guidance, mainly due to better-than-expected performance in new home decoration business and emerging businesses, with a gross profit margin of 25.5%, up 1% year-on-year. Non-GAAP net profit in Q4 increased by 10.8% year-on-year to 1.714 billion yuan. Existing home sales revenue reached 6.5 billion yuan in Q4, up 14.6% year-on-year, with GTV reaching 468.1 billion yuan, an increase of 30.1% year-on-year. Non-Lianjia GTV increased by 41.1% year-on-year. Beike pointed out that the company actively expanded its branch connections, and the optimistic performance of the second-hand market in second-tier and below cities led to an increase in the proportion of non-Lianjia, resulting in the growth rate of existing home sales revenue being lower than the GTV growth rate. The profit contribution margin of existing homes reached 44.5%, a significant increase of 7.4% year-on-year, mainly due to the low base effect of the 2022 pandemic, while the profit contribution margin decreased by 4.1% quarter-on-quarter mainly due to the additional bonus incentives in Q4. In terms of new home business, the overall new home market in the country was sluggish. Data from Ke Rui showed that the sales amount of the Top100 developers decreased by 32% year-on-year in Q4, but increased by 12% quarter-on-quarter. New home GTV in Q4 reached 238 billion yuan, down 9.7% year-on-year, but up 23.9% quarter-on-quarter, performing much better than the market. New home revenue in Q4 was 7.57 billion yuan, down 8.5% year-on-year, but up 28.3% quarter-on-quarter. Despite the decline in revenue, the profit contribution margin of new homes remained high at 26.4% year-on-year, demonstrating strong operational resilience. Q&A Q: The performance of the home decoration business in 2023 was impressive. What were the reasons for the rapid expansion of the scale and has there been an improvement in customer conversion rate? What is the strategic plan for 2024? A: There were significant breakthroughs in the home decoration business in 2023, with operating profits in 11 cities being positive; among them, operating profits in 4 cities exceeded 10 million yuan. The percentage of customers introduced by Beike brokers in 2023 reached 43%, an increase of 9.9 percentage points compared to 2022. The variety of categories is more diverse, with customized furniture/soft furnishings reaching 3.6 billion yuan, accounting for 27% of contract amount, up 5.8 percentage points year-on-year. The expansion of core city scale was the main driving force, with Beijing and Hangzhou breaking through 2 billion yuan, Shanghai exceeding 1 billion yuan, and 6 cities exceeding 500 million yuan. Growth came from the integration of first and second-tier tracks/product lines/improvement of completion capabilities. Specifically, the front-end customer acquisition capabilities were enhanced, iterative products based on understanding customers, and strengthening of back-end delivery capabilities. 2023 saw business breakthroughs, but it is more important to make customers feel that we are doing well. In 2024, based on steady expansion of scale, the key word is quality. Delivery is at the core of quality, excellent interaction is an important moat in the industry, and breakthroughs have been made in delivery capabilities in recent years. The days from 129 in 2022 to 111 in 2023, when there are problems, there is the courage to step in and solve them, and in the future, emphasis will be on prevention to achieve a virtuous cycle of peace of mind, selection, and preparation. Reduce construction period/increase processes/early detection of problems by housekeeping quality control/single city model to prepare for replication in more cities in the future. Q: How was the market penetration rate of existing homes in 2023, and what are the plans for this year? What is the company's expansion plan for branch stores, and what changes are there in the company's brand/branch store strategy? A: The company achieved improvements in scale, profitability, and efficiency, with talent retention being a key factor in seizing the rebound. Actively establishing connections with high-quality brands in the market; in 2023, revenue from existing homes increased by 29%, and income increased by 16% year-on-year; penetration rates in cities such as Nanjing, Hefei, Hangzhou, Jinan, Changsha, Qingdao, Beijing, and Shanghai increased. Expanding the scale of stores and brokers, by the end of 2023, the platform had over 42,000 active stores, and the number of active brokers also increased year-on-year. On the supply side, facing silent listings, you need to have the ability to know what a good house is, in order to create good houses and good turnover, leading to a virtuous cycle of more good houses. Strengthening digital capabilities for customer response and accurate recommendations for properties. In 2023, the average number of active stores increased by 29% year-on-year, and the average number of brokers increased by 25% year-on-year. Non-Beijing and Shanghai stores decreased by 34%, and the turnover rate of brokers decreased by 21%. 2024's keyword is to expand the CKH HOLDINGS ecosystem, confidence in active business growth, room for improvement in most cities, and plans to expand 5,000+ stores in 2024. For a few cities with historical presence, more choices have been harvested, leading to further penetration rates. This year will expand coverage to the demand groups in peripheral cities, seizing the most important aspect of substitution. Promoting brokers to make excellent changes for customers, promoting ecological improvement, shifting focus from guiding profitability towards refined operations, optimizing store space, and improving store satisfaction. For the direct operation of the Lianjia chain, while promoting the large store model, use small stores in hot areas to increase service rates. As for brokers, there are plans to recruit retired brokers through the veteran program, and strengthen broker training. Q: How was the real estate market trend in 2023, with existing homes clearly outperforming new homes, what are the reasons? What are the expectations for the real estate trend in 2024, will there be further differentiation between existing homes and new homes? A: The real estate market fluctuated significantly in 2023 and is still in a deep adjustment process. The market is accelerating its transition to second-hand homes, with second-hand home transactions accounting for close to 40% of the total, reaching a historical high, with GTV increasing by 20%-30% year-on-year. New home transaction amounts fell by 6%; sales amounts from the top 100 developers listed by Ke Erui decreased by 18%. Prices of second-hand homes in first-tier cities adjusted in the fourth quarter, but overall they remain higher than in 2019, while new home prices stabilized, mainly due to a structural increase in the proportion of high-tier cities. There is a structural shift in market supply and demand. Improve the demand as the absolute mainstay, accounting for 60%, for the first time.Real estate accounts for 30%, investment demand is around 10%. In terms of products, consumer preference is leaning towards second-hand homes. User surveys show that the preference for second-hand homes increased from 23% in June 2022 to 35% in December 2023. Preference for new homes decreased from 31% to 18%. Second-hand homes are fully meeting the demand for home purchases. Scarce locations are highly sought after due to issues with new housing locations, delivery, and product quality. Large-sized high-priced new homes are much favored. Demand is still there but has not translated into transactions; the number of property viewings is higher than the number of new listings. In cities like Hangzhou and Shenzhen, demand exists but people are hesitant to enter the market, confidence needs to be further restored. Last year's price suppression and sales volume exchange reflected the strong resilience of demand.In 23 years, the second-hand housing listing volume reached a historical high, which is the inevitable result of the expansion of the stock housing market. The second-hand market is mainly based on selling one and buying one, with more than 70% of the demand for replacement in first-tier cities. The increase in listing volume is a forward-looking indicator of demand, with some homeowners just trying it out. The supply and demand mismatch on the new housing side is evident, with a large supply concentrated in the outskirts of high-tier city core areas where demand is insufficient. The clearance period of supply-side inventory continues to lengthen. In response to the market situation, policies continue to be strengthened to support market stability, such as the comprehensive relaxation of purchase restrictions in Hangzhou. Although the short-term effects of policies are diminishing, the supportive effects of various policies over the past 22 years are still in place. During the Spring Festival, the average daily volume of second-hand housing transactions on the platform increased by more than 70% year-on-year, and the average transaction volume in Shenzhen and other places in the two weeks after the festival was higher than the weekly average in December, indicating that the second-hand housing market is stable. Showings turning into successful transactions are better than the same period last year. The second-hand housing prosperity index hit bottom at the beginning of the year, and the KMI has been continuously recovering since February. In terms of housing prices, the month-on-month price decline in the top 50 cities in 24 years continued to narrow, staying within 1% in February. The subdued demand for new homes persists, and developers' enthusiasm for pushing new projects is not high. Looking ahead to 24 years, there is potential for structural improvement in second-hand housing in third and fourth-tier cities, and GTV is expected to stabilize. The new housing market will continue to fluctuate and bottom out. On the supply side, more proactive measures will focus on improving new housing products and sales turnover. Q: How do you manage rental rates and risks, and what is the development plan for 24 years? A: The scale of ProSunZu's management has expanded from 70,000 units in 22 years to over 200,000 units in 23 years. Through various bottom-up capabilities building, the occupancy rate has further increased by 6 percentage points to 95.1% compared to 22 years. In 23 years, ProSunZu's products have been upgraded to reduce the risk of seasonal fluctuations and second-round rental failures; fine management is carried out to improve efficiency. Enhancing service quality, refining standardized service capabilities, enhancing team responsiveness, and improving tenant experience. The centralized apartments also expanded in 23 years with a scale exceeding 10,000 units. In 24 years, the scale under management will set high standards, with core cities such as Beijing, Shanghai, and Chengdu taking the main targets and achieving a profit and loss balance. The goal is to achieve efficiency improvement. In 23 years, the asset manager received an average of 10 units per person, and in 24 years, the goal is to reduce the variance. Bottoming out/personalized services. Q: The challenges for new housing in 23 years are significant, and the company has outperformed the market. How did the company achieve this result, and is there room for further improvement in channel penetration rate in the future, what are the further prospects for strategy? A: In 23 years, the industry shifted towards the buying market, requiring more professional services. The key to improving sales conversion is to focus on understanding consumer needs and transitioning to customer-focused services. Traditional promotion methods such as price reductions by developers have diminishing returns. In 20 monitored high-tier cities, the channel penetration rate reached 82% in the second half of the year, an increase of 11 percentage points from the first half. In 23 years, the company shifted towards being proactive and focused on improving quality. Deepening online coverage of consumers, establishing live broadcasts, etc. Close coordination with customers in second-hand housing transactions, establishing new partnerships with developers, with Q4 project coverage accounting for 51%, an increase of 10 percentage points from the beginning of the year. In the second half of the year, there was an emphasis on quick commissions for high-risk developers, with pre-paid commissions accounting for 53% in Q4; SOEs accounted for 53%. The fee rate for new housing in Q4 remained stable with upward trends. In 24 years, the company will advance strategic cooperation with high-quality developers in terms of supply, locking in high-quality new housing supply; there will be an increase in channel revenue sharing ratios, and fine operations for external channels. In 24 years, the company is confident in exceeding the market further.