Ke Holdings Inc (BEKE) 2021 Q4 法說會逐字稿

Hello ladies and gentlemen. Thank you for standing by for KE Holdings Incorporation's fourth quarter and fiscal year 2021 earnings conference call. At this time, all participants are in listen only mode. This conference call is being recorded. I'll now turn the call over to your host, Mr. 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 fourth quarter and fiscal year 2021 earnings conference call. The Company's financial and operating results were published in the press release earlier today and are posted on the Company's IR website www.investors.ke.com. On today's call, we have Mr. Stanley Yongdong Peng, our Co-Founder, Chairman and Chief Executive Officer and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments and Mr. 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 note that Beike's earnings press release and this conference call include discussions of our audited GAAP financial information as well as audited non-GAAP financial measures. Please refer to the Company's press release which contains a reconciliation of the audited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in renminbi.

With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please, go ahead sir.

Thank you Matthew. Hello everyone, thank you for joining Beike's first quarter 2021 earnings conference call. 2021 was a year of unprecedented hardship. With Lao Zuo's passing, the significant correction in the real estate market and the new paradigm for the internet-based platform economy, massive changes took place both internally and externally, posing many new changes to our Company. However, this is not unchartered territory for us.

Over the past 21 years, difficulties and change have accomplished us and gotten us where we are today. For an organization, it's not hardship when everyone within it is working together toward a common future goal. It's not hardship when the organization proactively resolves a problem it encounters and gets better and stronger from the experience each time. This is when hardship becomes a blessing, rising to challenges, transforming through change and deriving more vitality in the process. It is in embedded within our DNA.

This is also our stance and solution to address the current hardships. Market fluctuations have their own logic and inevitability. The many changes happening right now or that will happen in the future, have their seeds sown a long time ago. From a long-term perspective, the market will revert to its mean and in the short term, the market will gradually recover.

Our underlying belief about the housing-related industry has never changed. It is certain data digitalization catalyzes industry transformation, service providers are indispensable and service quality builds customer trust and transcends market cycles. It's also certain that a business model of our industry is categorized by slow, early-stage development, which means it will take time to establish a virtual cycle. Yet once we move past the inflection point, business will take off very quickly. All the right things we are doing now will surely sow the seeds for a better future, therefore we have a deep peace of mind. We are undisturbed by external fluctuations and we propel ourselves to looking forward for answers.

Be the enterprise of the era, that's our answer. At the end of 2021, we officially launched Beike's one body, two wings, [spoken in foreign language] strategic upgrade. One body refers to our core, which is our existing and new home transaction services business, while two wings refers to our home renovation and furnishing offerings and our inclusive housing services.

Through our upgraded strategic focus, we aim to fully energize our wings as we accelerate our core business programs towards its goals. Building an increasing presence in the wider housing-related services industry, reaching consumers more broadly and enduring through a diverse array of services and product innovations, and becoming a new living services provider that makes home a better place.

By that, we are responding to the higher requirements put forward to us by our country and society in this era, catering to consumers' fast-evolving demands from finding a place to live to a place of enjoy living as housing prices stabilizes and at the same time, meeting an organization's need for continuous iteration and progress; it provides long-term vision for our talent and drive the organization to thrive.

Can we do this? If something is relevant to our mission and vision, and it is something we have a strong desire and adequate ability to accomplish, we can. Why can we do this? Over the past 21 years, Lianjia expanded its single-city presence in Beijing to nationwide and Beike grew from a pilot in Zhengzhou and several cities to a platform operating in over 100 cities across China.

During this time, we iterated a complete set of methodologies to grow from zero to one for the industrial internet. We accumulated risk experience and learnings, such as cultivating key capabilities in each stage and finding the right place for the team. Sometimes you can't go too fast. If you want a tree to grow taller, you can't rush it to blossom or bear fruits. The aim needs to be higher and a farther. Other times, you must speed up and keep running forward with all your strength to achieve fast iteration.

Our team is extremely adept at reflection and abstract thinking, which enables us to constantly learn from experiences, accumulate and improve. Our profound set of zero to one methodologies also gives us full confidence in our expansion into new business areas.

Next, moving to our fourth quarter of 2021, our progress implementing the one body, two wings strategy and our future plans. Thanks to policy support, the market has shown signs of bottoming out since the fourth quarter of last year. However, it will take time for transaction volume to fully recover and the industry supply side to further contract in Q1. According to data from Kongbai Research Institute, [spoken in foreign language], as of the end of last year, the industry number of agents has contracted by at least 30% to 40% with wide variation across cities.

In comparison, on Beike's platform, we have 51,000 connected stores by the end of the fouth quarter, up 8.7% year-over-year and down 5.4% quarter-over-quarter. The number of active stores exceeded 45,000, up 4.4% year-over-year and down 8.3% quarter-over-quarter. The quarter-over-quarter store reduction was mainly due to fewer newly added stores during the market downcycle as well as stores merged to stay competitive.

At the end of the fourth quarter, we had around 455,000 agents on our platform, a decline of 7.8% year-over-year and 11.8% quarter-over-quarter. Active agents were around 407,000, down 8.7% year-over-year, 13.1% quarter-over-quarter and 18.6% lower from its peak in the second quarter in 2021, which was in line with our expectation.

Our resilience compared with the broader market was largely owing to our ACN mechanism and agent specialization which brought our agents more opportunities to take part in transactions and more stable income. This, together with the base compensation guarantee to high quality agents provided by solid store owners, empowered our platform with stronger agent retention capability and resilience.

Meanwhile, given the lower housing transaction volume in the fourth quarter, we temporarily cut back our online advertising budget and experienced a decrease in platform traffic. In the fourth quarter, we had 37.4 million MAUs on the Beike app and the mini program, down [22%] year-over-year. Nevertheless, as the market recovers, we expect our online traffic to resume growth in 2022.

Moving on to existing and new homes. Regarding existing home transaction services, according to data from Beike Research Institute, GTV of existing home sales market dropped 43% year-over-year in the fourth quarter and GTV of existing home transactions on Beike's platform was RMB354.6 billion, down 39% year-over-year, of which existing home sales declined 41%, slightly better than the overall market.

Existing home transaction volumes in some key cities have started to bottom out. We believe the key to successful brokerage business operation is collaboration and focus. In 2021 we established rules such as agent specialization and agent and store ranking system, refined our existing home sales leads allocation mechanism, and directed agents and stores to focus on homeowners retention through platform resources deployment, all of which enable us to lead agents to focus and collaborate, strengthening the superior and exclude the inferior.

We are also firmly committed to investing in industrial infrastructure. As of the end of last year, we started to operate 298 contract services centers in 30 key cities, and over 90% of the existing home transaction signing process was completed in these centers. As part of our infrastructure, these centers not only improve customer signing experiences, ensure funds safety, but will also became one of the best scenarios to direct traffic to our emerging business segments.

Turning to new home transaction services, the new home market declined 20% year-over-year in the fourth quarter and a GTV of new home transactions on Beike's platform dropped 24%, slightly underperforming the market, mainly as we cut back our new home transaction business due to the liquidity risks of developers to ensure the long-term health of our business. From a short-term perspective, it will take more time for the overall new home market to recover. We have prioritized new home risk management to ensure safe home handovers to buyers and the payment collection by service providers.

With the premise, we also hope to help developers through higher sell-through efficiency. The key to improving sell-through is to provide a work environment that gives agents a sense of security with the knowledge that they will receive their commission on time and their transaction will not be broken by any misconduct such as client information leakage that has prevailed in the industry.

In 2021 we continued to promote new home business conduct improvement plan, establishing infrastructure and comprehensive procedures to prevent, intervene, trace and penalize misbehaviors. We investigated and dealt with over 3000 incompliant cases throughout the year. Agents were feeling safer doing new home sales business.

We further developed our systems and tools to enhance agent capabilities. Our Xiaobei training camp, also enhanced agents' familiarity with new home projects and their ability to introduce them to customers. 98% of agents in the pilot program use our Xiaobei assistant at night to answer questions on their behalf and pick up the conversation the next day, significantly reducing the loss of customers at night.

Looking forward, regarding our one body, the housing transaction services business, we have a committed goal in mind and a clear path to get there. Our goal is to offer a better customer experience and gather more capable and the ethical agents, store managers and brands, and the path leading to this long-term target is simple, taking care of our customers and helping service providers take care of the customers, empower agents in raising their professional ethics, improve store quality and become friends with the communities.

In 2022, the first target for our core business segment is to nurture capable, ethical and dignified service providers and advance their professionalism. Second, we will pay more attention to improve the platform operation efficiency of our home transaction business. We will continue to improve organizational flexibility to quickly respond to any changes and take measures accordingly to either increase or rein in expenses. Third, the strength in our body will facilitate the development of our two wings as we build a higher efficiency customer referral model to our new business.

Next, moving to our progress and plans for our two wings, new business development. We defined 2021 and 2022 as the years during which our home renovation and the furnishings services business group takes root. We believe that consumer demand for home renovation and furnishing will continue to grow as the housing prices stabilize.

In this market, helping service providers is a key to enhance consumers' experience. Standardization and digitalization, along with renovation product upgrades at the core of improving service providers' capability and delivery quality.

In developing our renovation and furnishing offering, we started with the hardest part in the home renovation innovation process, delivering a high-quality interior construction finish. Over the past few years, we have laid the groundwork for this business. This part of our business seems slow but once we nail it, it will take off quickly.

We have already advanced from zero to one in the home renovation business. We are determined, our team is confident and motivated by the positive feedback from consumers and we have built a replicable regional model.

Shengdu is the most significant piece of the puzzle we have found, which allows us to replicate our model more rapidly at a scale to go from one to 100. In 2021, we built our capabilities to support expansion in a standardized manner at a large scale.

In building our underlying capabilities, we instituted a scientific management approach with respect to scheduling, transaction orders and a cooperation mechanism. We officially rolled out the Home SaaS version 1 system covering the entire home renovation business with multi-modules that could enable process standardization and enhance process productivity.

For example, its BIM version 1 system has become the industry's first product covering design, design rendering, detailing and modulization into a bill of materials.

Bolstered by our strong capabilities, Beike's self-operated home renovation business, Beiwoo, has become an industry leader in terms of construction standards and construction cycle as well as process management and control.

In 2021, we delivered our tender offer to Shengdu Home Renovation, China's leading home renovation and furnishing services brand, and the transaction has been approved by the SAMR. As of the end of 2021, Shengdu has more than 110 stores in 31 cities nation-wide.

We kicked off the preliminary integration between Shengdu and Beike. Shengdu has an absolute leadership position in the industry when it comes to size, organizational management, internal cost control and supply chain management. Beike has unique capability in digitalization, standardization of complex industry processes and customer acquisition in home renovation and furnishing, not to mention a sizable talent pool of industrial internet professionals.

Our combined companies are leveraging our respective advantages to generate substantial synergies and build China's number one home renovation and furnishing brand to empower the entire industry.

Looking forward to 2022, we hope to accelerate the expansion of our home renovation and furnishing business as well as the development of our underlying capabilities. With respect to building our capabilities, first, we will improve our ability to provide high-quality services through establish of middle-office capabilities, guarantees and training.

Second, we will focus on improved capabilities of construction delivery from both online and offline. Third, we will establish standardized operations to construction delivery process, service provider certification and so on.

We will also continue to iterate our Home SaaS version 2 system and invest in our talent pool. Supported by our upgraded underlying capabilities, we will actively expand our home renovation and furnishing business in nine cities where Beike's housing transaction services have core advantages.

Our housing transaction services will refer customers to our two wings business. In the pilot cities, our home transaction services already contribute 30% of the new business customer leads in the fourth quarter.

We are optimistic we can achieve further breakthroughs in 2022 after integration, fostering remarkable growth for our overall home renovation and furnishing business through the large-scale connection with high-quality service providers plus customized home furnishing production and sales on the back end.

The second wing in our one body, two wings strategy is inclusive housing services. It carries our affection and a devotion to our country and responsibility to society. It mainly covers home rentals plus a wide range value-added home services.

The housing supply gap is a prominent problem for new urban residents, young adults and low-income groups who are in the most urgent need of improving their living conditions. The national policy specifically encourages both home purchase and the renting. We will deeply participate in this industry in the future, increase high-quality rental housing supply and elevate the quality of the industry through diverse solutions and the broad external collaborations, providing real solutions to livelihood problems and improving living environments inclusively.

Our inclusive business -- housing business is divided into three categories. General home rental brokerage services, lite rental property management services and centralized serviced apartments, plus value-added home services.

In 2021, over 2.5 million general home rental transactions were completed on our platform, up 41% year-over-year. In second half of 2021, we launched a rental commission fee reduction campaign for fresh university graduates in cities such as Beijing and offered our support to more than 1600 university students in finding their first home after graduation.

The lite rental property management service managed more than 11,000 units in 2021 on average, up over 51% year-on-year. As to infrastructure, we promoted post-rental housekeeping services by providing a comprehensive variety of convenient home services for tenants and realized penetration of over 80% in the pilot program.

In 2022, we will deepen our exploration of diversified solutions for inclusive living from both the supply side and the user end. We will make efforts in diversified models to address (sic - add) over 100,000 rental units for new urban residents, young people and low-income groups.

On the consumer side, we plan to provide a comprehensive guarantee system for all types of tenants, this, coupled with diversified home services offer, will provide tenants with a safe and high-quality rental experience.

Lastly, it's a great honor for us to do business in China's housing-related services sector, a fertile group -- ground full of promise. No matter what weather comes our way, we will give back to this land, to our society and the people through our inclusive housing initiatives and more diverse solutions in the future. We, as an organization, will forever strive to go ahead and stay open.

With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of our fourth quarter and full year financials.

Thank you, Stanley and thank you everyone for joining us. Before discussing more details about our fourth quarter and the fiscal year of 2021 financial results, I would like to provide a brief overview of the housing market in 2021.

Beginning in the second half of 2020, overall housing price began to rise sharply, fueled by an economic recovery and overzealous expectations in the capital market. In order to cool the red-hot housing market, the Government introduced a variety of policies with unprecedented frequency and intensity, most notably, tightened credit measures.

These measures precipitated a steep decline in a volume of existing home sales, declining 47% in September compared to June. This in turn negatively impacted the new home market, since approximately 40% of new home transactions rely on the funds from existing home sales.

The financial health of many real estate developers worsened, triggering debt defaults from some high-profile, large-scale developers. This brought a significant blow to the debt market, making it even more difficult for many developers to issue the new debt to repay old ones. With concern for a rippling debt scenario, many local banks curbed developers' funds withdrawals from escrow accounts, leaving some developers in a serious cash shortage position.

The combined negative consequences of all of these factors were many. Firstly, more developers faced debt default risks in the second half of last year. Secondly, cash-strapped developers stopped payment to both upstream and downstream suppliers. Thirdly, some developers started to liquidate their valuable assets, including Sunac, who sold Beike's shares in order to strengthen their cash reserve. Developers also offered hefty discounts to promote quick project sales and clear inventories. Fourthly, land scales slumped as developers stayed on the sidelines.

Facing these headwinds, beginning in Q3 last year, the China housing market froze across the nation. Rapidly deteriorating conditions prompted policy makers to fine-tune some regulations starting in Q3 (sic Q4) last year, pledging to promote the healthy development of the housing market and better meet the reasonable demand for the home buyers.

Since then, marginal relaxation in credit measures have brought some signs of a thaw. The volume of existing home transactions has picked up slightly, while new home transactions are still pending developers' shortened liquidity status.

We expect market sentiment will gradually recover in the first half of 2022. Although the market recovery was still nascent and fragmented in Q4 with muted overall transaction volume, we were able to utilize this opportunity to optimize our execution and lay the groundwork to better position for further market recovery as was reflected in our operational and financial result in Q4.

Turning to our financial details in Q4, our net revenues were RMB17.8 billion in Q4 compared to RMB22.7 billion in the same period of 2020, exceeding both the high-end of our guidance and street consensus.

The decrease was primarily attributable to the decline of total GTV of 34.6% to RMB732.4 billion in Q4 from RMB1120 billion in the same period of 2020 due to the market downturn.

In particular, our net revenue from existing home transaction services were RMB6.0 billion in Q4 compared to RMB9.2 billion in the same period of 2020. Primarily due to a 39.4% decrease in GTV of existing home transactions to RMB354.6 billion in Q4 from RMB584.7 billion in the same period of 2020.

Our net revenue from new home transaction services decreased by 12.2% to RMB11.3 billion in Q4 from RMB12.9 billion in the same period of 2020. Primarily due to a 24% decrease in GTV of new home transactions to RMB356.8 billion in Q4 from RMB469.2 billion in the same period of 2020, which was partially offset by a moderate increase of new home transactions commission rate.

Our net revenue from emerging and other services were RMB0.5 billion in Q4 compared to RMB0.6 billion in the same period of 2020, primarily attributable to the decrease of net revenue from the financial services.

Cost of revenues was RMB14.9 billion in Q4 compared to RMB17.2 billion in the same period of 2020. Gross profit was RMB2.9 billion in Q4 compared to RMB5.4 billion in the same period of 2020.

Gross margin was 16.4% in Q4 compared to 23.9% in the same period of 2020. The decrease in gross margin was mainly due to (1) a continuing shift of revenue mix towards new home transaction services with the lower contribution margin. (2) A lower contribution margin of existing home transactions led by a relatively higher percentage of fixed compensation costs for Lianjia agents and (3) a relatively higher percentage of costs related to store of net revenues in the fourth quarter of 2021 as a result of the incremental rise in the rental fees of contract service centers opened in 2021 and the increased depreciation and amortization costs.

Operating expenses were RMB4.1 billion in Q4 compared to RMB 4.2 billion in the same period of 2020. General and administrative expenses were RMB2202 million in Q4 compared to RMB1884 million in the same period of 2020, mainly due to the increase of provision for credit losses.

Sales and marketing expenses were RMB809 million in Q4 compared to RMB1323 million in the same period of 2020, mainly due to the decrease of brand advertising and promotional marketing activities.

Research and development expenses were RMB738 million in Q4 compared RMB714 million in the same period of 2020, mainly due to the increase of headcount in experienced R&D personnel, which was partially offset by the decrease of the share-based compensation expenses.

Loss from operations was RMB1184 million in Q4 compared to income from operations of RMB1267 million in the same period of 2020. Operating margin was negative 6.7% in Q4 compared to 5.6% in the same period of 2020, primarily due to (1) relatively lower gross profit margin in the fourth quarter of 2021 compared to the same period of 2020 and (2) an increase percentage of total operating expenses as of net revenues in first quarter of 2021, primarily due to decreased net revenue along with the relatively flat operating expenses in the fourth quarter of 2021 compared to the same period of 2020.

Excluding non-GAAP items, our adjusted loss from operations was RMB398 million in Q4 compared to adjusted income from operations of RMB2231 million in the same period of 2020. Adjusted operating margin was negative 2.2% in Q4 compared to 9.8% in the same period of 2020. Adjusted EBITDA was RMB484 million in Q4 compared to RMB2897 million in the same period of 2020.

Net loss was RMB933 million in Q4 compared to net income of RMB1096 million in the same period of 2020. Excluding non-GAAP items, adjusted net income was RMB42 million in Q4 compared to RMB2001 million in the same period of 2020.

Net loss attributable to KE Holdings Inc's ordinary shareholders was RMB930 million in Q4 compared to a net income attributable to KE Holdings Inc's ordinary shareholders of RMB1095 million in the same period of 2020.

Adjusted net income attributable to KE Holding Inc was RMB45 million in Q4 compared to RMB2000 million in the same period of 2020.

For the fourth quarter of 2020, diluted net loss per ADS attributable to KE Holdings Inc's ordinary shareholders was RMB0.78, compared to diluted net income for ADS attributable to KE Holdings Inc's ordinary shareholders of RMB0.93 in the same period of 2020.

Adjusted diluted net income per ADS attributable to KE Holdings Inc's ordinary shareholders was RMB0.04 compared to RMB1.71 in the same period of 2020.

Even during the market downturn, we were still able to remain strong cash position and gained positive cash flow generated from the operation -- operating activities in Q4. As of December 31, 2021, the combined balance of the Company's cash, cash equivalents, restricted cash and the short-term investments amounted to RMB56.1 billion or US$8.8 billion.

Additionally, as of 31 December 2021, the balance of our long-term cash items, mainly including the long-term investments amounted to RMB14.9 billion or US$2.3 billion.

Turning to our financial details in fiscal year 2021. Although we experienced a sharp market downturn in the second half of last year that significantly impacted our operating and the financial results, we still achieved a resilient year-over-year growth of our topline in 2021.

For the fiscal year of 2021, our net revenue increased by 14.6% to RMB80.8 billion from RMB70.5 billion in 2020, primarily attributable to a 10.1% year-over-year increase of our GTV to RMB3,853.5 billion in 2021 from RMB3,499.1 billion in 2020.

Our gross profit decreased by 6.2% to RMB15.8 billion in 2021, from RMB16.9 billion in 2020. Our gross margin was 19.6% in 2021 compared to 23.9% in 2020.

The decrease in gross margin was mainly due to (1) a continuing shift in revenue mix towards new home transaction services with lower contribution margin, (2) a lower contribution margin of existing home transactions as a result of the higher percentage of the fixed compensation costs for Lianjia agents and the compensation costs for transaction support staffs and then (3) a lower contribution margin of new home transactions led by the increased proportion of new home sales transactions completed by the connected agents and other sales channels, and an incremental rise in the fixed compensation costs for expansion of dedicated sales teams with expertise on the new home transaction services in 2021.

Our loss from operations was RMB1.4 billion in 2021, compared to the income from operation of RMB2.8 billion in 2020. Operating margin was negative 1.7% in 2021, compared to 4% in 2020.

Primarily due to (1) a relatively lower gross margin profit (sic - profit margin) in 2021 compared to 2020; (2) an increase of the percentage of total operating expenses as of net revenues in 2021, primarily due to the increase of staff-related expenses, provision for credit losses, and the impairment of the goodwill incurred in 2021 compared to 2020.

Including non-GAAP items, our adjusted income from operations was RMB1.4 billion in 2021, compared to RMB5.9 billion in 2020.

Our net loss was RMB525 million in 2021, compared to net income of RMB2,778 million in 2020. Excluding non-GAAP items, our adjusted net income was RMB2,294 million in 2021, compared to RMB5,720 in 2020.

In mid-December, we were attacked and forced to defend ourselves against a groundless allegation, levied by a published short-seller report towards our Company. Upon receipt of the report, the audit committee quickly launched an internal review process, with the assistance of the third-party professional advisors, including an international law firm and forensic accounting experts from a Big-Four accounting firm that is not the Company's auditor.

In late January, before Chinese New Year, we announced the substantial completion of internal review which were conclusive in its findings that all allegations were not substantiated. It clearly showed evidence of our high standards and effort in data integrity, corporate governance and internal control.

We sincerely appreciate the extensive support and the trust we have received from our investors during this period and want to take this opportunity to publicly reiterate our commitment to maintaining those high standards, transparency and timely disclosure in compliance with applicable rules.

To sum up, as Stanley mentioned, 2021 was undoubtedly a challenging year for us. Yet, despite the formidable challenge, we made further solid progress in fulfilling our commitment to support our service providers and bringing admirable service and joyful living to our customers.

One body, two wings will guide our strategic expansion into the housing related complementary services in 2022 and bring meaningful financial impact in fiscal year 2022 and beyond.

I will now speak about our near-term focus and plans. Firstly, for our housing transaction services, we will focus on the profitability and the cash generation capability by further honing efficiency in our management and operating initiatives, along with continuing to invest into the industry infrastructure and our agent training.

The steps we took in Q4 to better optimize our organization have made us more flexible in embarking on our new one body, two wings strategy and will further drive our operating leverage. We will also continue to focus on prudent cash management and accounts receivables risk control considering the ongoing uncertainties from developers' operations in the first half of this year.

Benefitting from our effective management of the receivables, our DSO for the new home transaction services further reduced to 97 days in 2021 from 103 days in 2020. According to Beike Research Institute, overall market GTV of both existing home and new home transaction is expected to trend down year-over-year in 2022. As a result, we expect our GTV of the housing transaction services will observe a similar trend.

Secondly, for our two wings, home renovation and furnishing services and the inclusive housing services. While we're dreaming big we will move forward with careful steps. In developing both strategic businesses, further investment will be required and this will have an impact overall Group's profitability in 2022. We firmly believe these investments will yield long-term economic benefits and position us well to capture burgeoning new demand in complementary sectors.

Turning now to guidance for the first quarter of 2022. As stated in our Q3 earnings call, we foresee the market will likely hit bottom in Q1 of 2022 and will gradually, with time, gain traction in its recovery from this point.

Considering the housing market is still at the early stage of recovery, and adding the high base effect of the same period in 2021, we expect overall market GTV of existing home sales to fall about 50% year-over-year in Q1, and the overall market GTV of new home transactions to decrease over 40% year-over-year in Q1, according to Beike Research Institute.

Based on all above considerations, looking forward to the first quarter of 2022, we expect the total net revenue to be between RMB11.5 billion and RMB12.5 billion, representing a decrease of approximately 39.6% to 44.4% from the same quarter of 2021.

This forecast considers the potential impact of the recent real estate related policy and the measures and the Company's current and preliminary review on the business situation and market conditions, which is subject to change.

Overall, as we move forward through 2022, the toughest winter is gradually fading away. The era for better living is coming into focus with tremendous opportunities around living all fronts. In the depths of winter we have proved again that within us there's an invincible summer. As we continue to pursue our mission and capture adjacent opportunities, we will stay resilient, strengthen vertical capabilities and most importantly, keep an open mind.

Our decades of experience with the housing transaction services has prepared us well to level up the playground for the vast and expanding industry of better living.

We will continue to help service providers develop and operate with professional ethics and expertise and win respect from their high-quality services. We firmly believe our continued effort to bring our customers the service and experience, and our proven track record of overcoming difficulties will eventually lead us to better tomorrow.

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

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator instructions). For the benefit of all participants on today's call, please limit yourself to one question.

If you have additional questions, you can re-enter the queue. If you are going to ask question in Chinese, please follow with English translations.

Our first question comes from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.

Hi Stanley, Xu Tao, thank you for taking my question and congratulations on the unveiling of the one body, two wings strategy.

My first question is about following the decline that we've seen in GTV in fourth quarter and the guidance you've given for the first quarter, could you take us through how the market conditions have been since?

If I can slip in a second question; with the recent policy loosening, how should we set or reset expectations for housing recovery trends in 2022? If you could take us through that period quarter by quarter both in terms of price and volume that would be great. Thank you again.

Thank you Piyush, this is Xu Tao. Regarding your first question, so how is the market conditions since 4Q last year? I would like to say since the first quarter, the Chinese government is signaling stabilization for the micro-market and the housing policies, aiming to rectify the previous overtightened policy on the theme of housing for living, not for speculation.

The improving credit environment also have a lot of pent-up demand. Policy implementation (inaudible) responsible partly led to the [central government] policies for the (inaudible) measures.

Over 30 cities introduced the supportive policies focusing on the last restriction on the mortgage, home buying and the sales as well as the developers' presale proceeds.

For credit environment, that is a key factor for the housing market and has been improving recently, with the significant investment in the mortgage rates and approval process.

As of January 2022, the first home and the second home entry rate fell by 0.16% and 0.18% versus the [peak season] of last September respectively.

The mortgage (inaudible) cycle shortened to 50 days in 103 cities in January 2022. This is also a normalized level, similar to March 2021 and the 23 days less than the peak season in last October.

The improving credit environment on the consumer side directly contributes market recovery or impacts for the both agent and the homeowner's expectation and the sentiment [bottomed out] since November last year.

For existing home sales, improving credit environment [attracted] equity to facilitate the recovery.

According to Beike Research Institute, the (inaudible) in home market in Q4 last year trended around 43% year-over-year and 21% quarter-over-quarter.

The Beike existing home transaction GTV dropped by 39% year-over-year, among which the existing home sales GTV dropped by 41% year-over-year and 4% quarter-over-quarter.

Market wise, driven by the improving credit environment, existing home transactions that are interdependent of (inaudible) build and the performance in certain upper tier cities [bottomed out].

Monthly transaction volumes in 20 out of 32 cities on modified Beike, so sequential growth for three consecutive months. Quarter-on-quarter decrease in Q4 versus Q3 was mainly due to the high base in last July and August.

The existing home transaction on Beike platform also bottomed out in the last Q4, [resonated] by the month-over-month GTV growth of 11%, 7%, and then 19% respectively for October, November, and December.

For new home sales, [triennial] home sales market GTV dropped 20% year-over-year by the [posted] 9% growth quarter-over-quarter. New homes sales GTV on Beike dropped 24% year-over-year and 13% quarter-over-quarter.

Broader new home sales market, despite a slight rebound in Q4, the 9% quarter-over-quarter growth is much slower versus average 18% growth in the first quarter plus five years.

Lower-tier cities' performance was weaker, and (inaudible) wages or policy easing, it will still take time for the homebuyers to restore their confidence. We expect the shortened downside pressure to continue in new home market with divergent performance across different cities.

For Beike, new homes sales in Q4 and we continue to prioritize the stability and opt for prudent strategy for new home sales with a focus on the strengthen risk management mechanism, reducing the receivable collection risk and seeking incremental opportunities.

We proactively suspended cooperation with the high-risk projects adopted for conservative [run] recognition policy and timely, prudently made the provision for potential accounts receivable risks.

Regarding your second question, for the expectation on the housing recovery trends this year by quarter, and also the volume and the price with the recent policy loosening. Looking ahead to 2022, there are three things that we are very sure of.

The first is the rectification of overtightened policy. The second will be the strong consumer demand and the ready demand for the joyful living. The third thing will be market transactions will return to a steady volume.

Based on these views of our market GTV of home transactions this is expected to decrease around the 6% to 14% year-over-year, of which existing home down by low teens year-over-year and the new home down by 5% to 10% year-over-year. That said, we expect the decline in transaction volume to narrow down from 2Q onwards as the market should see a positive year-over-year growth in the second half.

At a macro level, the Chinese government has reiterated its emphasis on the stabilized growth for the macroeconomy in 2022. The Chinese government is calling for proactively introducing the policy positive to the economic stability and are cautiously implementing the policy with the tightened (inaudible).

Such a goal for stabilized growth that necessitates the role of the housing as a pillar industry. Beike Research Institute, we recently foresee a [neutral to a competitive] monetary policy stance to continue with [1RR cards] and two risk cards this year.

In 2022, estimated housing [relative] investment to remain flat versus 2021, underpinning the stable performance across housing sales and the [industry value trends] throughout the year. We also estimated that this year we will see a steady recovery of the housing market driven by [credit] environment and the (inaudible) tailwinds.

On the [priority] side, as estimated by the Beike Research Institute, for the mortgage interest rate cards and [priority] supply well placed the market demand that will lead to a higher growth mortgage supply versus the year of 2021, which will drive to unlock the [relative] and upgraded demand as a catalyst for the housing consumption.

On the administrative measures, we are expecting more local governments to relax the [money-side] measures in 2022 such as easier criteria for the first home [recognition], for your home purchase and sales restrictions.

Demand for housing remains massive and it will require time to (inaudible). Based on our estimation on accommodative policy environments (inaudible) stable demand growth trajectory, we expect a backloaded process for gradual market recovery in 2022.

In general, the 2022 new homes sales market GTV is estimated to around RMB15 trillion, down around 5% to 10% year-over-year, factoring in around the 10% year-over-year decline in the gross floor area according to Beike Research Institute.

The existing sales market GTV is estimated at around RMB6 trillion to RMB7 trillion, down by low teens year-over-year, factoring into low-teens year-over-year declines gross floor area. On combined basis of existing and new home markets, the GTV is total market -- GTV is actually at RMB28 trillion to RMB28.2 trillion, down around 6% to 14% year-over-year.

Regarding quota, Q1 should see a sequential decline bolstering existing and new home sales. Market GTV was (inaudible) at 4Q 2021 due to its seasonality like the Chinese New Year and the impact of COVID-19. [The regional trough] in this cycle as we brief during future earning calls. We [reasonably] foresee the year-over-year decline of the 50% for the existing home sales market GTV and a more than 40% decline for the new home market GTV in Q1.

We expect existing home transactions to stabilize post Chinese New Year, leading to a gradual recovery both in existing home sales and new home sales in Q2 with a significant and narrow year-over-year decline versus Q1.

Starting from Q3, according to Beike Research Institute, we expect year-over-year GTV growth for both existing and new home sales to turn positive and in the second half of 2022 we expect existing and new home sales market GTV to achieve an overall 25% and 15% year-over-year rebound respectively. Thank you.

Thank you for the questions. Next question is from the line of Ashley Xu of Credit Suisse. Please go ahead.

Thank you, Management for taking my question. Since you have just discussed the market outlook, could we also go through Beike's business outlook for year '22? Also, would you give us some color on the Company's strategy and investment this year in both core business and the (inaudible). Thank you.

Thank you, Ashley. I will answer the Beike's base outlook in 2022 and will invite our Chairman Stanley to answer the follow-up questions, develop our new strategy, one body, two wings.

Based on our outlook, I just answered to Piyush, we will deploy our effort under the one body, two wings strategy.

On GTV and agent store size, we reasonably foresee the Beike existing home transaction GTV will be able to outperform the broader market in the recovery cycle. For new home settlements, we will closely monitor the rapid rise in the first half of 2020, focus on the transaction safety, and the [managed] accounts receivable risk. Our new home sales performance is expected to be in line with the market.

On agent store size, we foresee a bottom-out in Q1 2022 for our platform stores as well as agent count. Compared to Q1 2022 we expect a number of active stores and agents on our platform to grow by low single digits when exiting year of 2022.

For monetization and profitability, we will lay more emphasis on our operational efficiency for our platform and the connected store, (reflected) by stable monetization rates and the platform take rates for our core business including existing and new home transaction services.

We will continue our strict cost control starting from 4Q 2021. With these measures, the contribution margin is also expected to increase both for the existing and new home sales.

This year marks a new chapter for our new business development of home renovation and furnishing. Beike will draw upon this customer acquisition advantage and leverage construction delivery and execution capability of (inaudible) [Shengdu] to expand, especially in 90 cities. Shengdu is [expected] to be consulted in our financial statement and generally significant revenue contribution upon the completion in the second half of this year.

Our inclusive housing service business is in a run-up phase, so in a longer horizon the two wings business will effectively mitigate and offset the impact of the market downturns in our core business and call and capture additional revenues from the stable environment.

I would like to invite our Chairman Stanley to give some color for our strategy one body, two wings.

(interpreted) This is Stanley. Let me quickly address your question in terms of the one body, two wings strategy. I think in terms of the one body, two wings strategy, they are actually related to a couple of questions.

First question is why we actually have been announced and launching the one body, two wings strategy at the current stage. I think the fundamental reason behind that is we actually monitor two of the fundamental changes from the market as well as the society.

Firstly is in terms of the consumers' attitude and their value actually has been significant change from buying the house to living better. So that actually brings us very good opportunities to bring the changes.

The second change is coming from the valuation as well as the proposition for all the enterprise. I think now more and more of the enterprise actually has been value. Both of the commercial value as well as the social value at the same stage. We do believe followed by those two of the changes is the right time to launch our new strategies.

The second -- the question related to one body, two wings is how we can execute that, and think that there are a couple of the strands I want to address there. Firstly is our mission of the Company, which is admirable services and is service provided with dignity, then bring the joyful living.

Within our industry, we do -- rather than the agents, we do notice for other service providers such as foremen, workers, as well as other -- the housing services related, or the home services related, there are all the different types of the service providers, which is eager to improve their professionalism as well as bring the better services to the customers.

Secondly, is we actually have the capability to do that. In the past two decades, we actually have been accumulating a lot of different capabilities in terms of standardization, in terms of the online and offline execution, as well as the other parts.

So that actually gives us more confidence to doing those parts of business. The third thing is we have the willingness to do of those kind of -- the business. So that's the first two questions I want to address related to one body and two wings strategy.

In terms of one body and two wings strategies there are a couple of the most important factors which we have been mentioning many times before, including the scalability quality, as well as the efficiency.

But when we develop a business, no doubt we cannot promote all the three parts simultaneously. So, at every stage we have a focus.

In terms of one body business, we truly believe at the current stage, we should continually improve by improve the service quality, to further improve the efficiency. We'll continue find out more of the different -- the excellence of the service providers in the one body business.

For example, like the good brands, good stores, good developers, as well as the other part. Meanwhile, we also will make a balance between the investment as well as the efficiency, like our sale of (inaudible) has been mentioned before. So, we'll further improve our cash use efficiency in order to bring the further changes into our one body business.

On the other hand, in terms of the tooling business, we do believe the current focus will be using the further service quality improvement to bring the better scalabilities.

So, for example, in terms of our home decoration and furnishing business, I think for that part of industry, there still has a question, it's whether one Company can bring over RMB10 billion of revenue per year.

So far we didn't see that, but hopefully after [cooperate with Shengdu] together and we can bring more breakthrough in terms of the business model into the home decoration, the renovation, furnishing business.

I think this year we'll continue promote what we call the five one strategies, which means one organization, one standard, one process, and one system, and most important thing is one goal, right.

So, in order to further bring the better scalability business for the home decoration and furnishing.

Meanwhile for the other -- on the other things, which is called the inclusive housing services, we do believe we should continue to unite the different types of the supply in the society, including the life model, as well as others.

The supplies in the society, more tailored made to the young generation, or even to the blue collar of the workers, et cetera.

So, by consolidating all those kind of -- the high quality of the supply of the industry, we do believe we can using our capability to further empower them in the different parts, such as talent, infrastructure in order to bring a better balance between the Company's commercial value, as well as the social value.

Thank you. So that's my answer to your question. Back to you Operator.

Thank you. Next question comes from Thomas Chong of Jeffries. Please go ahead.

(Spoken in foreign language)

Thomas, could you translate your question into English please?

Yes, sure. Thanks to Management for taking my questions. My question is about the decline in terms of the store numbers. Can Management comment about the reason behind?

My second question is about the AR or the accounts receivable in Q4. Can Management comment about the bad debt situation? Thank you.

Okay. Thank you, Thomas. This is Xu Tao.

Let me answer your first question regarding the decline for the number of stores in the first quarter. The number of broker stores on Beike platform reduced to approximately 2900 sequentially in Q4, down around 5.4% quarter-over-quarter.

Around [4100] connected stores disconnected from the platform in Q4 and an increase of 400 was as for Q3, while approximately 1200 connected stores newly joined the platform in Q4 and 2300 as in Q3. Therefore, the decrease in the total number of stores on the platform is mainly driven by the slowdown of the newly connected stores in Q4.

As market troughs, the platform slows down the pace of connecting new stores to focus on improving the operational efficiency. At the same time, the number of stores meeting our selection criteria but are not yet connected has been declining during the market downturn as well. For these client stores, the quarterly number increased by 400 quarter-over-quarter, of which 310 stores disconnected due to the [stormwater] and to enhancing their competitiveness during a market downturn.

In addition, the disconnection due to the valuation as of the total disconnected store was only 7% -- was 7% lower than that in Q1 2021, show increase [or reflective governance] of the platform ecosystem throughout the year.

In Q1 as the market formed a bottom during the Chinese New Year, the common practice such as merging and shutting down stores are likely to occur, and some stores may also choose not to renew their leases when expiring around the yearend or before Chinese New Year, resulting in further declines in number of stores on our platform. However, the number of stores on the platform is expected to increase gradually after the market stabilizes in Q2.

Regarding your second question for the bad debt and whether we have any risk for the collection, I would like to say at first, number talks. There is no material risk for Beike's new home business. If you look at our early release of DSO, reduced from 103 days in 2020 to 97 days in 2021, and also in 2021 the total commission revenue from new home sales was RMB46.5 billion while our collection was RMB51.7 billion in this year.

Our Company had approximately RMB11.5 billion of accounts receivable for Q4, including approximately RMB11 billion for the new home transaction services, whereas the cash collection for the new home transaction services was approximately RMB12.6 billion in Q4. The backup provision for accounts receivable or other receivables in Q4 totaled RMB620 million, representing a quarter-over-quarter increase of RMB250 million.

Beike strategically increased the bad debt provision in Q4 due to several reasons. First, on one hand, due to the continuous downturn of the new home market, developers' and liquidity risks increased significantly. Therefore, the increase in the scope and the percentage of bad debt provision reflects Beike's principle in adopting a most prudent and the strictest accounting treatment, amid exacerbating market risks.

The second is the classification of more projects as high risk and the increase of bad debt provision will encourage our frontline teams to explore more business opportunities from the low-risk projects and the reduced proportion of the high-risk projects in the future.

Also, there are a few (inaudible) on the liquidity pressure, to repeat (inaudible). We have recently seen a series of policy easing for developers such as acquisition loans no longer counting towards (inaudible), relaxation of the control over pre-sales proceeds, but it is believed that these measures marginally ease the developers' liquidity risk, but it will take time for the policy to be fully effective.

The rebound of sales and the subsequent recycling of cash will ultimately solve the challenging developer space at this moment whilst improving the sell-through is exactly where Beike's strength lies.

For our internal risk control, we will continue the initiative we have been taking over the past to improve our dynamic risk [central] model for monitoring the relative developers and their new home projects.

Through an advanced assessment based on our risk rating mechanism, we will avoid cooperation on the high-risk projects and cease the cooperation of the risk [sized] posed and focus on the repayments.

All in all, I would like to say that Beike's bad debt provision for the new home transaction services was a proactive choice made by us based on our prudent accounting policy. We do not believe Beike's new home business will face a material risk because Beike enjoys the high degree of independence in its new home business.

Since our businesses are not reliant on relationship but on our extensive network of sales channels, high quality of service, recognition by our customers and our reputation, we closely monitor risk and implement countermeasures as soon as we perceive them. We believe the industry will be in a better shape in the future despite the short-term pain. Thank you.

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

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.