Ke Holdings Inc (BEKE) 2021 Q1 法說會逐字稿

Hello ladies and gentlemen, thank you for standing by for KE Holdings Incorporated First Quarter 2021 Earnings Conference Call. All participants are in a listen only mode. Today's conference is being recorded. I will now turn the call over to your host Mister Matthew Zhao IR Director of the Company, please go ahead Matthew.

Thank you operator, good evening and good morning everyone. Welcome to KE Holdings Inc or Beike's First Quarter 2021 Earnings Conference Call. The Company's financial and operating results were published in the press release earlier today and are posted on our Company's IR website www.investors.ke.com. On today's call, we have Mister Stanley Yongdong Peng, our Co-Founder and Chief Executive Officer, and Mister Tao Xu our Chief Financial Officer. Mister Peng will provide an overview of our strategic and business developments and Mister Xu will provide additional details on the Company's financial results.

Before we continue, I refer you to our Safe Harbor statement in our earnings press release which applies to this call, as we will make forward looking statements. Please also know that because earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial matters. Please refer to the Company's press release which contains a reconciliation of the unaudited non-GAAP] matters to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our CEO Mister Stanley Peng, please go ahead Stanley.

Thank you, Matthew. Hello everyone, and thank you for joining us today on our first quarter 2021 Earnings Conference Call. We are very grateful to have achieved operational and financial results in the first quarter that considerably exceeded expectations, thanks to the tailwinds from China's robust economic growth following the COVID-19 pandemic and the adherence of the national policy "houses are for living, not for speculation", as well as our unwavering focus on the long-term goal of delivering an excellent consumer experience through quality service. Our total GTV grew rapidly to 1.07 trillion RMB, up 224.2% year-over-year. Meanwhile, the self-reinforcing virtuous cycle of efficiency and scalability, driven by quality service, was further enhanced on our platform.

We continued promoting industry digitalization by further building online infrastructure. In the first quarter, our housing dictionary contained data for over 244 million homes in China. Average MAUs, including our platform's apps and WeChat mini-programs, reached 48.5 million in the first quarter, up 78% year-over-year. The expansion of our network's scale also continued at a robust pace while we remained focused on the quality of our network. By the end of the first quarter, the total number of connected stores reached 48,700, up 25.4% year-over-year. Seamless and win-win collaboration among stores and brands continued to prevail on our platform. In the first quarter, 76% of transactions on our platform were completed through cross-store collaborations, and the transactions completed through cross-brand collaborations remained steady at 36% on our platform, while connected stores accounted for 83% of existing home listings. In addition, we continuously supported our connected stores and brands in recruiting, cultivating, and retaining agents in the first quarter, which led to 41.8% year-over-year growth of the number of agents on our platform, reaching a total of 528,000.

With that overview, I would now like to provide you with some color on our existing home transaction services business. Total GTV of existing home transactions in China grew 133% year-over-year in the first quarter. The substantial gain was, in part, due to the low base in 2020 caused by the severe impact of the pandemic, as well as the impact of some structural transaction growth at the regional level. On our platform, GTV of existing home transactions reached 673.4 billion RMB in the first quarter, increasing 244.2%, and unit store GTV of existing home transactions achieved 174.7% year-over-year expansion. Continuously improved service quality and efficiency of connected stores was the primary driver of these robust gains.

In the first quarter, we initiated an Agent Specialization strategy, which encourages agents to focus on either existing home sales, new home sales, or home rentals, rather than their traditional mixed functions in the industry. Aided by the cooperative mindset we foster among agents, along with clearly- defined roles and performance-based commission allocation mechanisms, this strategy helps agents sharpen their focus, cultivate stronger professional service capabilities, promote efficient customer conversion across different offerings, and ultimately improve store efficiency and the consumer experience.

The Agent Specialization strategy has proven very effective in enhancing consumer experience and store efficiency. Taking the pilot city of Hangzhou as an example, over 15,000 agents, were assigned to different roles in the first quarter. Unit store GTV was 11% higher in the stores where agent specialization was implemented, compared to stores that had not divided agent functions. By the end of the first quarter, we had implemented this mechanism in 20 cities, covering 17,800 stores. Given the encouraging early results, we plan to adopt this strategy in batches in at least 30 cities this year.

In order to create value for our consumers one step further and improve the real estate transaction processes, we began opening offline contract service centers in our major cities. Our goal is to further guarantee transaction security, streamline the signing process, and enhance the efficiency of multiple parties. The real estate contract and signing process tends to be very complicated and often requires comprehensive knowledge across finance, legal and tax fields. The lack of professional service offerings that fit these needs left consumers exposed to transactional risk. Our contract service centers address exactly this pain point as they become the go-to location for customers regarding all contract-related services. The process is completed with a professional contract manager to ensure compliance and full risk disclosure, which provides a safe, efficient, and convenient contract experience for our customers. By the end of the first quarter, we had opened 74 contract signing service centers in 21 cities.

Switching gears to our new home transaction services. In the first quarter, GTV for new home transactions increased 96% year-over-year in China, which was attributable to the low base last year, as well as developers' strong incentive to accelerate sell-through. GTV of our new home transaction services was 343.4 billion RMB, up 194.9% year-over-year, driven by the 220% GTV growth of connected stores and other channels as we continued to enhance the efficiency and professional training to our connected agents. On par with our stellar financial performance, we also made substantial strides in new-home transactions in digitalization content enrichment and ecosystem governance. This aims to empower service providers such as developers, and continue to enhance the service quality and maximize value for the consumer.

As we communicated during our fourth quarter earnings call, we are dedicated to build online content for new home transactions to improve the consumer experience, online penetration, and facilitate this segment's digital transformation. As of March 31, we enriched comprehensive and multi-dimensional information for more than 10,000 new home sales projects on our platform covering 34 cities, and offering consumers with more online information such as 3D property book through data processing. Together with platform and AI-generated online content such as valuation assessment reports and AI house layout plans, we were able to better satisfy the consumers' needs for new home online information. We also optimized our new home sales traffic and leads acquisition strategy. Thanks to all these initiatives, we generated, on average, a 10% increase in new home customer leads in those 34 cities in the first quarter, and significantly enhanced the online experience for consumers.

Moreover, we launched a "New Home Business Conduct Improvement Plan" to advocate for a transparent and healthy new home sales environment based on governance and better collaboration mechanisms in the new home transaction services. Our goal is to facilitate a fair, safe, efficient, and orderly ecosystem for the new home transaction services that addresses the improper practices that have existed for a long time, such as vicious competition for customers, customer information leakage and forced rebates. By promoting governance mechanisms in the industry, including rules and protocols, as well as the capability to implement them, we aim to protect agents' rights and offer a sense of security and certainty to them. Eventually, this would substantially protect the legitimate interests of developers and improve agents' efficiency and income, enhance the consumer experience, and create a virtuous cycle that enhances the overall operating efficiency of the new home industry. In the first quarter, we implemented a verification system at the agent level and put in place city-level supervision teams. We have also signed agreements with 91% of developers on our platform on 'Five Don'ts,' making a firm commitment to the developers and the overall industry.

For new homes, another important initiative is the New Home Sales Empowerment Plan. By cultivating dedicated agents with the expertise on new home transaction services, as well as online and offline full-spectrum customer acquisition capabilities, the plan caters to consumers' different needs when purchasing new home projects compared with existing homes. At the same time, the portfolio of new home sales channels we offer to developers is further enriched, better meeting their needs for more focused and efficient sales channels.

Lastly, on our emerging services. We have made steady progress in home renovation services and financial services. We completed 551 home renovation units in Beijing in the first quarter while progressively iterating the infrastructure including multiple self-developed systems. Among them, our self-developed Beiwoo BIM system version 1.0 was launched in the first quarter. As part of the industry infrastructure, the Beiwoo BIM system successfully digitalized home renovation and decoration design.

For designers, the BIM system enabled automatic drawing output, accurate real-time quotations, and the generation of digital bill of materials (BOM) as well as accurate VR design effects, supported by the VR capability available on our platform. This not only solves the industry-wide problem of visualizing and translating the abstract designs from a designer's mind, but also lays out the foundation for the final construction feasibility with highly enhanced data accuracy. For consumers this greatly reinforces the notion that on our platform "what you see is what you get", and empowers them to take control of renovation costs in real time, the service reliability is greatly enhanced. We believe we have established the industry-leading position in the infrastructure we provide for home renovation and decoration, including the systems, products and applications for both consumers and service providers.

In terms of financial services, recognizing 60% of sellers in existing home transactions have a demand for property redemption, we promoted the 'AnXinBao' product to meet owners' redemption needs more efficiently, and at an average 26% decrease in cost. At the end of the first quarter, this product had entered 7 cities, improving the overall transaction experience for home owners in existing home transactions.

In summary, 2021 is off to a strong start. Our financial and operational performance has spotlighted our core strengths and we continue to gain traction with our ACN network in new and existing home markets. The national policy of 'houses are for living, not for speculation' that underpins the foundation for a steady and healthy real-estate market provides added support to our mission to transform the housing transaction and services industry in China. Going forward, we will continually evolve our business and invest in initiatives close to our core while creating a new and better normal for the industry, building trust and increasing value for everyone along the way.

With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of our first-quarter financials.

Thank you.

Thank you, Stanley. Thank you everyone for joining us. I would like to provide a brief overview for our first quarter of 2021 financial results. We are pleased to deliver another strong quarter of financial results, marked by high revenue growth and strong profitability.

Our net revenues increased by 190.7% year-over-year to RMB20.7 billion in Q1, exceeding both the high-end of our guidance and street consensus. The rapid growth of net revenues was driven by solid GTV growth of 224.2% year-over-year to RMB1.07 trillion. The high growth rate in the first quarter of 2021 was primarily attributable to a lower base in the same period of last year under the impact of COVID-19. However, although we experienced the impact of the Chinese New Year in Q1, our net revenues in Q1 still surpassed the revenues in both Q2 and Q3 of last year, and only declined single digit on a sequential basis, demonstrating the strong momentum of top line growth.

In particular, our net revenues from existing home transaction services increased by 202.1% year-over-year to RMB10.2 billion in Q1, mainly due to a 244.2% year-over-year increase in GTV of existing home transactions to RMB673.4 billion in Q1.

Our net revenues from new home transaction services increased by 187.6% year-over-year to RMB9.9 billion in Q1, primarily due to a 194.9% year-over-year increase in GTV of new home transactions to RMB343.4 billion in Q1.

Our net revenues from emerging and other services increased by 96.2% year-over-year to RMB0.6 billion in Q1. The increase was primarily due to an increase in the GTV of financial services around the housing transaction services, as well as an increased number of home decorations units completed through the Company's platform.

Cost of revenues increased by 140.0% year-over-year to RMB15.9 billion in Q1. Gross profit increased by 860.4% year-over-year to RMB4.8 billion in Q1. Gross margin increased to 23.3% from 7.0% in the same period of 2020. The increase in gross margin was mainly attributable to a low base in the first quarter of 2020 under the impact of the COVID-19 outbreak.

Operating expenses were RMB3.8 billion in Q1, compared to RMB2.1 billion in the same period of 2020. General and administrative expenses were RMB2.1 billion, compared to RMB1.1 billion in the same period of 2020, mainly due to the increase in headcount as well as share-based compensation expenses. Sales and marketing expenses were RMB1.1 billion, compared to RMB577 million in the same period of 2020, mainly due to the increase of the online and offline advertisement and branding campaigns. Research and development expenses were RMB638 million in Q1, compared to RMB451 million in the same period of 2020, mainly due to an increase of headcount in experienced R&D personnel as well as increased share-based compensation expenses.

Income from operations was RMB1.0 billion in Q1, compared to loss from operations of RMB1.6 billion in the same period of 2020. Operating margin was 4.9% in Q1, compared to negative 22.9% in the same period of 2020, primarily due to the increase of net revenues and the impact of COVID-19 outbreak in last Q1.

Excluding non-GAAP items, our adjusted income from operations was RMB1.6 billion in Q1, compared to adjusted loss from operations of RMB1.5 billion in the same period of 2020. Adjusted operating margin was 7.6% in Q1, compared to negative 20.8% in the same period of 2020. Adjusted EBITDA was RMB2.0 billion in Q1, compared to negative RMB1.2 billion in the same period of 2020.

Net income was RMB1.1 billion in Q1, compared to net loss of RMB1.2 billion in the same period of 2020. Excluding non-GAAP items, our adjusted net income was RMB1.5 billion in Q1, compared to adjusted net loss of RMB1.1 billion in the same period of 2020.

Net income attributable to KE Holdings Inc.'s ordinary shareholders was RMB1.1 billion in Q1, compared to net loss attributable to KE Holdings Inc.'s ordinary shareholders of RMB1.9 billion in the same period of 2020. Adjusted net income attributable to KE Holdings Inc. was RMB1.5 billion in Q1, compared to adjusted net loss attributable to KE Holdings Inc. of RMB1.1 billion in the same period of 2020.

Diluted net income per ADS attributable to KE Holdings Inc.'s ordinary shareholders was RMB0.88 in Q1, compared to negative RMB3.92 in the same period of 2020. Adjusted diluted net income per ADS attributable to KE Holdings Inc.'s ordinary shareholders was RMB1.25 in Q1, compared to negative RMB3.64 in the same period of 2020.

As of March 31, 2021, the combined balance of our cash, cash equivalents, restricted cash and short-term investments amounted to RMB62.0 billion, or USD9.5 billion.

Looking forward to the second quarter of 2021, we expect our net revenues to be between RMB22.5 billion and RMB23.5 billion, representing an increase of approximately 11.7% to 16.7% from the same quarter of 2020. The relatively low year-over-year growth rate of our revenue guidance is mainly due to a high base in the same period of last year, which resulted from a meaningful portion of transactions shifted from Q1 to Q2 last year due to the impact of the COVID-19 outbreak. This business outlook reflects the company's current and preliminary view on the business situation and market condition, which is subject to change.

Meanwhile, since our business operation had been negatively impacted by COVID-19 outbreak in Q1 of last year and a meaningful portion of transactions had been shifted to Q2 of last year, we suggest that investors to look at and compare our financial performance as a whole for the first half of 2021 versus the first half to 2020 to better reflect our business progress.

Last but not the least, we noticed that certain cities have implemented new city-level real estate policy change during the first quarter to control the overheated housing price, which may bring negative impact to regional real estate markets in the short term. Nevertheless, we believe that a stable real estate market is beneficial for the sustainable development of Beike and the whole industry. Since the rigid and upgrade demands for customers remained the mainstream in housing transaction market, we believe that our industry-leading services will continue to attract more customers and allow us to mitigate short-term fluctuations in a few cities. In conclusion, with a long-term outlook and a market-neutral view, we are confident in our growth potential. Our commitment in consistently enhancing our efforts in bringing value to consumers and empowering the service providers will continue to support us realize our vision.

That concludes our prepared remarks. We would like now to open the call to your questions. Operator, please go ahead.

(Operator Instructions)

Your first question comes from the line of Elsie Cheng from Goldman Sachs. Please ask your question.

(Spoken in foreign language) Thank you, Management, for taking my questions and congrats on the strong quarter again. I have three questions. First is about the efficiency at Lianjia and connected stores. Can you share a bit more color into the GTV personal growth as well as the main drivers of the growth for the quarter?

Then second is on antitrust regulations in China. How does Management think about the regulatory environment and the impacts to our Company, if any?

Third is for the macro and housing industry where we've seen some tightening policies in a couple of tier 1 cities, and what would be the impact from those cities and how should we think about future trends? Thank you.

Thank you, Elsie. Let me answer your questions. Regarding our store efficiency for the Lianjia and connected store, for the first quarter for 2021, the average GTV per store increased 163.3% year-over-year and quarter-over-quarter, sequentially we decreased 2%. Our proprietary brand Lianjia year-over-year has increased 182% and the quarter-over-quarter increased 2%.

Our connected stores increased year over year 193% whereas quarter over quarter decreased 5%, so year-over-year increase is mainly due to negative impact of COVID-19 because last year all into COVID-19 outbreak we shut down our business for 1.5 months to the secure safety of our agents and the clients. Nevertheless, during the period, our VR tour was not only unaffected but developed very well, so that's (inaudible) and then meaningful (inaudible) this is the main reason. For the quarter-over-quarter decrease just owing to seasonality, because normally so Q4's strong quarter and Q1's relatively weak quarter owing to the Chinese New Year holiday.

But if you look at this Q1 versus last Q4, the number post-COVID is very meaningful because even though we had the impact of the Chinese New Year but flywheel effect of quality, efficiency and scalability on connected store is further played out. Thus the traditional low season of first quarter and peak season of fourth quarter did not show much impact and just Q1 were still delivered robust results as the number exceeds last Q2 and Q3.

Looking back, in 2020 GTV per store for our proprietary brand Lianjia is RMB164 million, Deyou is RMB48 million, other connected store is RMB36 million. By the end of 2020, there were more than 31% store passed the 50 million breadline. Looking forward, this number increased to 36.7% in this quarter. That means more than 17,000 store in Beike platform already passed the 50 million breadline. We anticipate by 2025 more than 90% of our store on platform can pass the 50 million breadline. According to our IPO model and set 2019 as basis, and we are very confident that our proprietary brand of Lianjia from 2019 to 2024, the CAGR every year will be reached 11% to 12% and the connected store efficiency will reach 15% to 16% either year-over-year.

In the long run, we expect ACN will continue to reveal its network effect, the new home sale business development, increased efficiency given for scientific store management and the quality service bring customer satisfaction - all of this will further enhance store efficiency.

Regarding your questions for recent anti-trust regulation, Beike consistently operate within the bounds of the laws, regulations and the rules. We always prioritize the interests of users and spare no efforts to achieved win-win results through cooperative mechanism. Beike insist and are committed to promote the healthy development of the industry, devoted in solving inauthentic property listings problem caused by the housing supply and the demand imbalance and Beike is striving to be outstanding company in full compliance with the rules and the regulations.

Fundamentally, for our understands, anti-trust governance is to regulate and promote healthy and sustainable industry development, facilitate industry iteration towards being more platform based, digitalized and automated and to prevent disorderly expansion through capital investment that damage an orderly and benign competition environments. Regulations are in place to promote healthy development for the industry and encourage development to non-public sectors in the economy. Through this round of frequent communications with government authorities, as a corporate citizen, we are even more determined to take social responsibility as top priorities. At the same time, the government also get a better understanding of a Beike's business model and the contribution we have made to help the industry grow and the iterate over past [20] (corrected by company after the call) years.

Beike sincerely welcomes the supervision, complaints and suggestions from customers and the public so that we can fix the problem and iterate ourselves and better give back to the society. At the same time, we are also very grateful that the regulatory authority for the understanding and the guidance on our business and the recognition of what we have brought to the entire industry.

Regarding your third question for the macroeconomy and some parts changed. For our understanding, the central economic conference this year addressed that the real estate market is related to people's livelihood and their welfare, that is we always mention, housing for living, not for speculation and this is a key policy to promote steady and healthy development of this market. The goal for this policy is to protect the healthy development of the market not to punish or freeze it. based on the judgment in this year, some cities have been introduced to relatively mild measures. These measures have effectively prevented market from overheating in some cities like Shenzhen, and avoided severe measures and greater fluctuation down the road, and fostered the market with stable growth, which provide the beneficial environment for Beike's operation.

From a macro perspective, what the government wants is stability, not freezing, in other words, the market cannot too hot and cannot too cold and a moderate real estate market is beneficial to China's economy, especially post-pandemic period. A market with reasonable volatility, it's the best market to prevent drastic peaks peaks and the troughs that sometimes people pull forward future transactions and that this is very conducive for the operation of a company that has a long-term and market neutral outlook such as we do. Because at Beike we want to align with government demand, which is steady transaction volume for the long run instead of benefiting only during the peak seasons.

From a more micro perspective, obviously we see all regulatory policy aims to curbing speculative demands in the market, with the goal of squeezing them out. But the mainstream demand will still exist in the market such as the rigid housing demands and the people's willing to upgrade demand, all of the demands will be gradually released in the remaining months of the year and we will work on to fulfil them. Although some cities need to be cool down, but the remaining transactions in most of other cities will be still secured. so from this perspective we do not believe nationwide transaction volume will be significantly affected.

One case for your reference is excluding the GTV in our tier one cities like Beijing, Shanghai, Guangzhou, Shenzhen, so our GTV in March compared with January still increased 55.5% in March. As the national platform allows us to mitigate cyclical fluctuations in a few cities and Beike, we are very confident to deliver robust results for the rest of the year.

The 19-year history of Beike and Lianjia has proven that neutral market with balanced supply and demand provides the best foundation for our long-term development. And our cost of development from 2017 to 2020 also demonstrated that Beike is a firm supporter and the beneficiary of the national policy of house for living, not for speculations.

Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.

(Spoken in foreign language) Thanks management for taking my questions and congratulations on the very solid set of results. My question is more about the second half outlook, as well as the trend for different segments. Can management comment about how the trend will look like for the GTV revenue and the profitability, together with on the by-segment basis, how should we think about the trend for the existing home, new home, as well as the emerging services outlook as we come to the second half? Thank you.

Okay, thank you Thomas and regarding the first question for the second half outlook, because Beike has delivered better-than-expected financial performance in past three quarters continuously after IPO. So looking forward, we have the confidence to continue to deliver strong growth for the rest of the year. Just now we give our guidance of Q2 revenue, which is RMB 22.5 billion to RMB 23.5 billion. This is year over year from 11% to 16% increase. So in 2021 the fundamental purpose of regulatory policy in certain cities is preventing housing price going up too fast and irrationale. So as I just answered the question to Elsie - we still thought the second half market overall will be stable and healthy owing to the rigid demand and the people is willing to change to particular input the living conditions. So we do not believe the nationwide transition volume will be significantly affected. So we are very confident to give the robust result for the rest of the year. This is our answer to first question.

The second is regarding a question for our take rate and our commission rate. So I think this question we iterate time to time during past ER calls. The level of commission rate actually reflects the service quality, transaction efficiency and number of service guarantees we offered. Today China residential market for both existing home and new home is a market with full competition and balanced supply and demand. The platform cannot and does not have the capability to actively control it, namely raising commission rate without being justified by the service quality, transaction efficiency and number of service guarantees offered is not sustainable, especially for the new home sales market is a typical to-B market. Developers are more at the dominant position.

And just number (inaudible) in our past four years owing to Beike's solid efficiency and excellent service quality, our new home commission rate modestly increase from 2.55%, 2.66%, 2.71% and 2.74% and in the first quarter, our commission rate for the new home is 2.89%. Beike does not have any intention to increase our commission rates. With that, we will focus on to partner with the developers to jointly and continuously promote better customer experience as for example, we are doing the - we together with partners part of the new home buying process under 3-day cool down commitment.

And for existing home sales in the past three years, our proprietary brand of Lianjia commission rate gradually grows from 2.3% to 2.4% and connected stores gradually grow from 1.89% to 2.07%. In the future we still say the change in commission rate will continue to rely on the progression of the service quality, efficiency and the service commitment we offer to client. This is regarding your second questions.

Regarding your last question for emerging services outlook of financial services and for our decoration, let me me talk about the renovation and decoration first.

In 2020, our -- for the renovation and decoration, , the total contract signing is 2500 and we completed the units most decrease 300. In this Q1, even there is some impact of the Chinese New Year holiday but we still complete the project with the 551 units, and we reasonably foresee the contract signing and the number of the units that we should complete in 2021 will be doubled compared with 2020.

The very important thing is we believe that the key success factors for a decoration construction business are customer acquisition efficiency, control over key talents and control over the delivery process and the service quality.

This market in China is big, around RMB3.6 trillion in 2020, and with low market concentration and the growth rate in the next five years we estimate about the 12% CAGR which leads to huge market opportunity.

So I think Beike, we have inherent - especially we are doing the - first we have significant advantage in customer acquisition. The industry's customer acquisition channels was very fragmented. Since Beike could leverage our advantage from existing home transaction services and we anticipate the 60% plus of existing home sales transactions are strongly related to decoration demand.

In addition, we have a powerful gene on the online and offline integrated capabilities. And Beike have the powerful offline management and empowerment gene, and has rich operational experience.

So we are reasonably positive our system is rooted in the business demands and continuous iterated to improve, effectively assist the management's operations and the implementation of business roadmap to assist realize the overall control of the quality of workers and process.

And for our financial business, the growth of financial services GTV in Q1 exceeded our expectations. This is mainly due to our sustainable growth of new home transaction services and our stable financial service penetration rate.

Regarding the monetization rate of financial service in Q1 has slightly declined, this was mainly due to the fact that the Q1 market is very volatile. The major cities have undergone various regulation adjustments and the consumers tax liability, credit and other friction cost has been improved.

As simple as that, we thought the nature of the financial services to assist existing home transactions and help consumers to complete the transaction. So we have strategically launched and expanded the scope of free financial services in some cities, especially guarantee type of services.

So it actually reflected that we passed over some benefit to our transaction business by providing some reliable financial service free of charge to our customers, and we are not very hurry to realize that all - that part of the profit from those services soon. And this is also in line with national policy of house for living and not for speculation. We will continue to a neutral market view and do the things good for consumers. Okay, I hope this clarifies your questions. Thank you Thomas.

Thank you.

(Spoken in foreign language) Hey, Thomas, this is Stanley. Let me add on in terms of our philosophies to develop the new business in the future. So firstly, when we look at the new business, we always look at the big potentials of the market size in those kinds of areas. We notice rounding of the residential topics, there will always be some of the big market potentials such as renovation and decoration.

When we notice those kinds of industries, they always have some of the common pain-points such as overall user experience extremely low and there's the overall players in that market are quite fragmented as well as the overall service procedures are quite complicated.

So based on our past 19 years of experience from the Lianjia's practice to Beike, we believe the transforming of the industrial internet will definitely go to the routine. Firstly, doing deeply then doing horizontally. So we believe it's the only way to do that right? Especially when we're doing deeply, it means we will dig deep into that industry and understand the standard and build up the new standard for the services.

So in the past 19 years, we actually get a couple of the takes. Firstly is the - is what we used to call the three standards. So firstly, it's about the service provider standard. What kind of services could be called the good services? Now, how we define that. So that will be the first thing, is we can further empower to the service providers in the industry such as decoration and renovation.

Secondly, it is standard for the overall service procedures, right? Especially, for example, the renovation business during - of the whole construction part and how we can provide the SOP as well as define the new standard for the overall services is what we continue to work on.

The third part, it was a standard for the - you know, just the standard for the data as well as the system. So we notice the industry such as - the market such as decoration. There is no systematic data that has been online and has been digitalized. So that is why, in the past period, we really focused on how we can build up the standard, how we build up the protocols as I already mentioned during my prepared remarks.

For example, we also build up the BIM system as well as other initiatives in order to further increase of the standard as well as the protocols understanding for this part of business.

So in summary, when we look at the new business as I mentioned, so what - we always had the full commitment as well as an endeavor to further transform of that part of our business.

So we strongly encourage the investors to look at our efforts for the new business at least on a three year's basis. So and that will give us more confidence to continue and prepare more efforts to further transforming of the new business in the future. Thank you.

Thank you.

Your next question comes from the line of Liping Zhao from CICC. Please, ask your question.

(Spoken in foreign language) Thanks for taking my questions. I have two questions here. First one is related to the new home transaction. Some believe the entry barrier of new home transaction business is relatively lower compared to existing home transaction. There are more players in the market recently. What is Beike's core competitive advantage in new home transaction and what's your strategy to protect and gain more market share?

Second question related to existing home transactions. Compared with property service companies, Beike has strong efficiencies in matching buyers and their listed home. However, those property service companies have the advantage of being localized players and tight relationships with property owners.

In the long run, whether our ACN plans to - plans to involve more players around the industry value chain for example those profiting service companies? Thank you.

Okay, thank you. Regarding your first question, for the new home service and our core competency. From Beike's (inaudible) we would like to say, as we mention in our earlier ER calls, after Beike's IPO we knew there will be more capital and players entering this industry, there's nothing odd.

We truly welcome more players entering this area, as it will help us to keep humble and in awe. Continuously reevaluate and polish our strategy and iterate ourselves. From Beike, we do hope to cooperate which everyone to make this industry a better environment for agents and increase agent efficiency and improve the customer experience for the housing transactions.

So far we do realize there is some strange things, it's like the unfair competition and the capital based disorderly expansion such as setting low commission rates, high rebates, or so-called unrealistic binding valuation promise. This is definitely false proposition and which is lacking deep understanding of how to do business for the new home transactions.

In the past and last year, with mega internet companies entering the industry with high profile tone, which ended up with acquisitions has disapproved this rationale. So as core competency of the new home business, only two things.

The first is caring about agents, guaranteeing the agent basic interests and timely payments (inaudible)in for Beike in this Q1 (inaudible) in advance to secure the agent interest and make sure the people will get money in time.

The second is caring about customers, improving the customer experience in new home buying process, and the promoting the three days cooling down period etc. Since it's what we have continuously doing. Although we are not prepared at this moment, but we are already on the way of doing so. Where there is a will, there is a way.

So currently Beike we are focus on the online information building, and to become even more closer with the developers to build orderly and better sales office, help our connected brand stores outside of our ACN, further promote the customer first and quality service to be infinitely close to Lianjia, this is what we are continuing to strength and reduce the need to put aside.

Okay, regarding the second- your question is for some skipping orders. So this is nothing new. They are always so-called skipping orders issue in this market in past ten years, which we treated as a kind of normal leakage loss to our business. We call this model as a parasitic model.

We have always believed that as long as we insist on providing quality service, and do things good for the Chinese consumers. Consumers will vote with their feet, which have been also verified by our past 19 years of history. For those who want to take advantage from skipping orders, whether they are property management companies, or other brokerage companies, maybe ultimately punished by the market. We believe that as the Chinese market enter into the era of balance between supply and demand, consumers demand for the quality service will rise further, and consumers will increasingly chooses better quality service providers like Beike. The business volume through skipping orders, which will not generate significant negative impact to us in the future.

Although property management companies can't actually - they do have some local community advantages but it is difficult to provide consumer with the most comprehensive source of listing. Most owners will not change house in the same complex, this is a common practice from our observations. And the property management companies cannot provide enough listings and source to them.

At the same time, the real estate developers do not have the ability to cultivate the most professional and efficient service provider in the real estate brokerage industry. Therefore from the business model perspective, it is difficult for the property management companies to generate capabilities for real estate brokerage services on a large scale.

If the property management companies prevent the brokerage company from serving the owner, and damages to owner's rights and interest, according to the Civil Code, the owner has their own rights to votes and change the property management companies. In the long run, we believe the development of the property management industry in China benefits the country and the people. Excellent property management companies have always been the object of our study.

We believe as well as the property management companies that aims to provide consumer with good services will not choose the vicious competition by skipping or cutting orders from their consumers. We also welcome and more actively establish contacts with leading property management companies and explore opportunities to build up partnership in residential services. Thank you.

Your next question comes from the line of Binbin Ding from JP Morgan. Please ask your question.

Oh, good evening. (Spoken in foreign language) I'll translate it myself quickly. I have two questions. So the notice that originally the management of Anjuke made some comments on Weibo regarding the industry as well as Beike.

So my first question is for that anti-trust, I know from a market share perspective you are not, apparently not in an operations dominant position in the market. But in what aspects or processes are exposed to the highest potential anti-trust risk in your view?

Second question is related to competition. So from a competitive angle, will the changes in recent competitive dynamic, including the listing of Anjuke could bring, any changes or make you become more aggressive in terms of certain operational strategies? Thank you.

Okay, thank you Binbin. Regarding your second question, for the anti-trust. I believe I have already gave a very clear answer on the elaboration where I answered questions from IOC about government. So regarding your first question, we would like first to say, Anjuke used to be a leading online information in China's real estate vertical.

It has been exploring and accumulate the online user traffic, and used to establish some competitive advantage in that area. Just like E-House, TMall HaoFang and FCB Group. It is one of the fellow industry participants and that we have always respect for.

We normally we don't comment other peers or comment directly, but I would like to take this chance to share our view on how to build capable company when doing housing transaction in China. Maintaining and providing authentic listings is not an option. It is a foundation for all real estate transactions. Eliminating inauthentic and fake listings mark the beginning of the successful and any business model. This is I want to mention the point 1.

The point 2 is when selecting new home purchase to work with, people should adhere to a comprehensive and strict risk assessment system, with three key requirements: scale of the project, reasonable commission rate to incentivize agents, and solid payment claw back capability as well as the positive cash flow of the business operation, otherwise the business model is not sustainable.

The third, the comprehensive risk assessment system, time-tested and experienced operation force, healthy AR turn over days and deep pockets to provide commission in advance to secures agents' interest.

Strictly monitor and prevent rebates and the customer interception behaviors. This has a long way to go. The competition through the short-term behavior such as an excessive commission sharing and lower price will bring the high uncertainty to the business model in the long run. This is definitely false proposition and lacking of the deep understanding of the market.

So, we noticed the cash position, might be a bottleneck for Anjuke to grow its new home business but doing new home business requires strong cash position of the deep pockets.

According to Anjuke's prospectus as of 28 February 2021 the balance of Anjuke's cash, cash equivalent and short investment, the total amounting to RMB1.63 billion, while in the same period Beike just paid commission in advance of RMB4.3 billion to agents to secure their interest which covers 130,000 payments and cover 5,018 projects.

From apple to apple basis, our cash, cash equivalents and short-term investments amounted to RMB49.1 billion at the end of Q1 which counts 30 times of Anjuke.

Regarding recent noises from the Yaojinbo on social media, we are reluctant comment him. When he goes slow, we go high, don't waste time on this guy. Operator, let's move to the questions.

We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Mr Matthew Zhao for closing remarks.

Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's investor relations team through the information provided on our website. This concludes today's call, and we are looking forward to speaking with you again next quarter. Thank you and goodbye.

That concludes today's conference call. Thank you for participating. You may now disconnect