Introduction to KE Holdings Inc

KE Holdings Inc, also known as Beike, is a leading platform in China offering integrated online and offline housing transaction brokerage services. As of now, the company boasts the largest such platform in the nation, providing services that cater to various needs related to housing transactions.

3Q24 Earnings Performance

Beike’s financial performance in 3Q24 exceeded expectations, with a 27% year-over-year (yoy) increase in revenue, amounting to Rmb22.3 billion. This was in line with consensus estimates, although slightly below the previously guided 32% yoy growth. Despite the revenue growth, the non-GAAP net profit showed a decline of 17% yoy to Rmb1.8 billion, yet it stood 6% above consensus estimates. The non-GAAP net margin contracted by 4 percentage points (ppt) yoy to 7.9%.

4Q24 Outlook

Looking ahead, Beike has guided a robust revenue growth forecast for 4Q24, projecting a 39-44% yoy increase to Rmb28-29 billion, which is 15% above consensus estimates. The strong outlook is maintained despite anticipated pressures on margins.

Segment Analysis

Existing Home Transactions: The revenue from existing home transactions declined by 15% yoy to Rmb6.2 billion, supported by a 9% yoy growth in gross transaction value (GTV).

New Home Transactions: This segment saw a 31% yoy increase in revenue to Rmb7.7 billion, driven by an 18% rebound in GTV growth to Rmb228 billion. Beike’s market share in targeted cities rose by 2ppt yoy.

Home Renovation and Furnishing: Revenue surged by 33% yoy to Rmb4.2 billion, outpacing contracted sales growth due to improved delivery efficiency.

Emerging and Other Services: Revenue in this segment fell by 22% yoy to Rmb487 million.

Home Rental Services: This segment experienced significant growth with revenue increasing 118% yoy to Rmb3.9 billion.

Financial Metrics

The company’s net turnover is projected to rise from Rmb73.9 billion in 2023 to Rmb116.4 billion by 2026. EBITDA is expected to grow substantially, reaching Rmb8.6 billion by 2026. Net profit forecasts indicate a significant rise, with adjusted net profit reaching Rmb11.5 billion by 2026.

Margin and GTV Analysis

Beike’s non-GAAP operating income in 3Q24 declined by 28% yoy, with the non-GAAP operating margin shrinking by 5ppt yoy to 6%. The gross margin was recorded at 22.7%, down from 27.4% in 3Q23. The existing home GTV from Lianjia edged up by 2% yoy to Rmb195 billion, while GTV through connected agents rose by 14.4% yoy.

4Q24 Revenue Guidance Breakdown

Beike has projected a 4Q24 revenue growth of 39-44% yoy. Existing home GTV is expected to surge over 40% both sequentially and yoy, with significant contributions from October and November. New-home GTV is also expected to rise by 40% yoy, outperforming the top developers in the market.

Soft Margin Outlook for 4Q24

Beike anticipates a 2ppt yoy drop in gross margin due to lower revenue contribution and higher fixed costs in the existing-home transactions segment. A one-off incremental operating expense of Rmb1 billion is expected, attributed to increases in shared-based compensation and store openings.

Share Repurchases and Market Strategy

By the end of September 2024, Beike had repurchased US\$1.5 billion worth of shares, reducing the total number of shares. The company plans to deliver at least a 5% return to shareholders for the full year 2024. Additionally, Beike’s inclusion in the Southbound Connect is scheduled for early March 2025.

Target Price and Recommendations

UOB Kay Hian maintains a BUY recommendation on Beike, raising the target price to HK\$70.00 (US\$27.00). The recommendation is based on a 25x PE against a 22% EPS CAGR forecast for 2025-28. Beike is trading at 18.6x 2025F PE.

Potential Catalysts and Risks

Key potential catalysts include higher monetization rates, reduced competition, and positive governmental policies to stimulate housing transactions. However, risks such as real estate sector cyclicality, intensified competition, and regulatory pressures on brokerage commission rates remain.