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KE Outcomes Present Inexperienced Shoots Of Restoration After Actual-Property Winter – KE Holdings (NYSE:BEKE), Fangdd Community Group (NASDAQ:DUO)

Key Takeaways:

  • KE Holdings recorded a modest however sudden rise within the gross transaction worth of current houses within the final quarter. It additionally swung from a loss to a 372 million yuan web revenue regardless of a drop in revenues
  • The standout performers had been Its residence renovation and leases companies, the place web revenue soared final yr

By Ken Lo

In the direction of the top of final yr, many Chinese language companies had been in deep hibernation as Covid controls forged a wintry chill on the financial system. However a giant identify within the real-estate sector managed to drag off an earnings shock within the ultimate quarter and publish a revenue.

Main residential property dealer KE Holdings Inc. A WEEK reported a smaller than anticipated dip in revenues for the fourth quarter and managed to land within the black, lifted by a surge in revenue from its residence enchancment and leases companies.

The corporate, whose distinctive inexperienced indicators adorn a community of Chinese language real-estate businesses, reported final Thursday that revenues fell 5.8% to 16.7 billion yuan ($2.4 billion) within the fourth quarter, an enchancment on its earlier forecast of between 14.5 billion and 15 billion yuan.  The gross transaction worth (GTV) of current houses was unexpectedly resilient, rising 1.5% through the quarter.

Income from the house enchancment enterprise sky-rocketed, with a 35-fold enhance within the quarter, whereas turnover from the rising enterprise section, which incorporates leases, greater than doubled. These flourishing companies offset weak spot in property offers.

The information went down nicely with traders, as the corporate’s share value jumped 9% to strategy the HK$50 stage the day after the outcomes.

Chairman and CEO Peng Yongdong put a lot of the success right down to the corporate’s collaborative enterprise mannequin through which brokers from completely different manufacturers can share property itemizing info, participate in a transaction and break up the fee between them.

He mentioned the corporate’s Agent Cooperation Community (ACN) provided business individuals a greater distribution of enterprise alternative, creating room for enterprise development regardless of the powerful circumstances within the real-estate market.

Nonetheless, the general property downturn and the anti-Covid restrictions did go away their mark on KE earnings. Income from current houses fell almost 12% within the fourth quarter, whereas revenue from new residence transactions dropped nearly 27% from the identical interval a yr earlier.

Nevertheless, the corporate’s gross margin surged 8 proportion factors yr on yr to 24.4% within the quarter, on an elevated income share from the extra worthwhile companies similar to current residence transaction companies, renovations and residential furnishing.

Bringing Down Working Prices

The corporate additionally managed to chop prices by decrease dealer commissions and salaries. Working prices fell 14.9% to 12.7 billion yuan within the fourth quarter, permitting the corporate to land within the black with a web revenue of 372 million yuan, rebounding from a web lack of 933 million yuan within the year-earlier quarter.

Nevertheless, falling gross transaction worth for final yr as an entire left KE with a web lack of 2.49 billion yuan within the first half, and its full-year web loss widened to 1.4 billion yuan, greater than double the 2021 shortfall, regardless of the quarterly earnings increase.

However issues look brighter at an operational stage. Excluding gadgets similar to truthful worth adjustments, goodwill and amortization of acquired companies, the corporate’s non-GAAP adjusted annual web revenue really rose 24.4% to 2.85 billion yuan. On an operational foundation, the corporate’s enterprise efficiency is enhancing underneath a method launched in 2021 dubbed “one physique, two wings”.

KE divides its enterprise into 4 main segments: transaction companies for current houses, transaction companies for brand new properties, renovation and residential furnishing, and rising and different companies.

In its technique, the mainstay real-estate offers make up the physique. One wing is the not too long ago added residence enchancment companies, whereas the second wing is the rental enterprise. The market downturn took a toll on the core enterprise, sending KE’s property GTV plunging 32.3% to 2.6 trillion yuan final yr. Income from current houses fell 24.5%, whereas revenue from new residence transactions plunged 38.3%. Total, income fell 24.9% to 60.7 billion yuan for the yr.

However China’s actual property market is exhibiting indicators of restoration after the federal government launched a raft of help measures final yr and lifted its anti-Covid controls. The GTV of nationwide residential property rose 3.5% within the first two months of this yr from the identical interval of 2022, based on information from China’s Nationwide Bureau of Statistics.

KE can be upbeat in regards to the outlook, forecasting income of about 18 billion to 18.5 billion yuan within the first quarter of this yr, a year-on-year soar of greater than 43%.

Uplift From The “Two Wings”

KE’s efficiency final yr was boosted by the “two wings” of its technique – residence enhancements and property leases.

Annual web revenues from the house renovation and furnishing enterprise rose 24-fold to five.05 billion yuan, after the corporate acquired Shengdu Residence Renovation, whose outcomes have been consolidated into KE earnings because the second quarter of final yr.

Whereas property purchases have fallen, many Chinese language have turned to the rental market to place a roof over their heads. KE’s rising enterprise section, which incorporates rental companies, reaped the rewards, with revenues rising round 33% to 2.85 billion yuan final yr.

KE has hooked up strategic worth to increasing within the rental sector. In March final yr, it set a goal of reaching 100,000 rental properties for the yr. By the top of 2022, its rental enterprise had expanded into 13 cities, with whole properties underneath its administration exceeding 120,000. Leases promise to offer one other development engine for the corporate.

A rebound within the housing market will undoubtedly give traders excessive hopes for China’s prime property dealer, which boasts a market capitalization of almost HK$190 billion, double the low level reached in October final yr. Its closest counterpart, on-line property market Fangdd Community DUOremains to be within the purple, with a price-to-sales (P/S) ratio of solely about 0.08 occasions, far behind KE’s 2.53 occasions.

With indicators of a thaw within the property market, KE’s dominant place seems to be to be safe.


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