KE Holdings Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Scale vs Efficiency: Recognized the need to shift from scale to efficiency in housing transaction services. Highlighted that scale and efficiency are not mutually exclusive, and AI-led innovation can drive productivity gains while maintaining network scale.
• Home Renovation Strategy: Focuses on Community-Centric Operations and full-service premium store model. Piloted a full-service home renovation premium store in Beijing, using showrooms with modular products and community-specific service providers to bridge the distance with users.
• Home Rental Business Efficiency: Addressed challenges of diseconomies of scale in traditional management models. Restructured organization into specialized roles, optimized product model to a steady rent pass-through model, and deployed AI to handle standardization and improve operations.
• Beihaojia Business: Emphasized being asset-light and not a developer. Focused on C2M product solutions and marketing services for developers, with strict limits on self-owned funds investment, capped at no more than RMB 1 billion in additional self-owned funds after existing projects.

Segment Performance

• Housing Transaction Services: Existing home sales transactions on the platform rose 26% year-over-year in the first half, outpacing the market's 19% growth. New home orders on the platform increased by 19% year-over-year, outperforming the market which declined by 6%. Revenue from existing home transactions in Q2 was RMB6.7 billion, down 8.4% year-over-year but remaining relatively flat quarter-over-quarter. GTV was RMB583.5 billion. New home GTV in Q2 was RMB255.4 billion, up 8.5% year-over-year and 10% quarter-over-quarter. Revenue from new home transactions was RMB8.6 billion, rising by 8.6% year-over-year and 6.7% quarter-over-quarter.
• Home Renovation and Furnishing Services: Revenue reached RMB4.6 billion in Q2, increasing by 13% year-over-year. Contribution margin for the business reached 32.1%, up 0.8 percentage points year-over-year, driven by a larger proportion of centralized procurement and enhanced order dispatching efficiency.
• Home Rental Services Business: Revenue reached a record high of RMB5.7 billion in Q2, up 78% year-over-year, mainly benefiting from the rapid growth in the number of rental units under management. The contribution margin for home rental services was 8.4%, up 2.5 percentage points year-over-year and 1.6 percentage points quarter-over-quarter.
• Emerging and Other Services: Revenue in Q2 was RMB432 million, down 50.6% year-over-year but up 23.5% quarter-over-quarter.

Guidance

• Share Repurchase: Board approved an expansion of the existing share repurchase program, increasing authorization to US$5 billion and extending the program to August 31, 2028.
• AI-Driven Efficiency: Continues to invest in AI applications across businesses, such as AIGC marketing, AI-driven CRM, and Pudding AI, to enhance user experiences and operational efficiency.
• Business Focus: Continues to prioritize efficiency improvements, community-centric operations, and leveraging AI to unlock organizational efficiencies.

Risks

• Macro Environment Fluctuations: The real estate market is affected by factors like international trade friction, fading policy impacts, and seasonal corrections, which can impact business performance.
• Market Competition: Intense competition in the real estate services industry may affect market share and profitability.
• Policy Changes: Changes in real estate policies can influence market dynamics and regulatory requirements for operations.

Question and Answer

Q: Timothy Zhao from Goldman Sachs asked about the Q2 secondary home market and future trajectory, including policy tools.

A: Tao Xu responded by discussing H1 market trends, noting existing homes held up better but momentum slowed in Q2, and mentioned potential policy support like relaxed purchase restrictions and supply-side improvements to restore market confidence.

Q: John Lam from UBS inquired about sector downturn impacts on market share, agents' and stores' productivity, and growth strategy.

A: Tao Xu stated they are shifting focus from scale to efficiency, with strategic investments in certain cities and using AI to enhance productivity, citing examples like AI-driven CRM tools and AIGC marketing.

Q: Griffin Chan from Citi asked about new property development models creating opportunities for Beike in demand forecast and product design.

A: Tao Xu explained how new models like high-quality homes and move-in-ready new homes create opportunities, including price forecasting capabilities using AI, unit mix forecasting, and customer insights to assist developers.

Q: Daniel Chen from JPMorgan questioned the home renovation and furnishing business's growth drivers, cost optimization, and city coverage.

A: Tao Xu highlighted revenue growth driven by increased orders and average revenue per order, cost optimization through centralized procurement and improved labor efficiency, and plans to optimize store networks with small-sized premium stores near transaction centers.

Q: Xiaodan Zhang from CICC asked about Beihaojia's future plans and investment budget limits.

A: Tao Xu clarified Beihaojia's asset-light model, focus on C2M product solutions and marketing services for developers, and strict limits on self-owned funds investment, capped at no more than RMB 1 billion in additional self-owned funds after existing projects.