KE Holdings Inc. (BEKE) Earnings Call Transcript & Summary

Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.'s First Quarter 2022 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. I will 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 First Quarter 2022 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, investors.ke.com. For today's call, we have Mr. Stanley Peng, our Chairman and Chief Executive Officer; and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategy and business developments, and Mr. Xu will provide additional details on our financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which apply 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 our audited non-GAAP financial measures. Please refer to our press release, which contains a reconciliation of all these 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 Chair CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Thank you, Matthew. Hello, everyone. Thank you for joining Beike's first quarter 2022 earnings conference call. Looking back on the first quarter, we were confronted with tremendous challenges, mostly arising from short-term uncertainties. But these uncertainties have not shaken Beike in the slightest. We are now more convinced than ever of the positive long-term market outlook, the prospect of achieving our goal and the task together. We believe taking care of customers customer and helping service providers take care of customers is at the center of everything we do. We are resolved to choose the difficulty in our path while placing multiple options. The market volatilities have made our beliefs more real, more certain and inspire us to reflect on ourselves and more importantly, give us the tenacity to survive during the coming winter. Meanwhile, we must stay optimistic. In the long term, our target addressable market in [ uniting ] new home net sales will continue to grow steadily and the broader living sector will usher in greater new opportunities. Streaming upstream, only the brave will succeed. In the recent long or massive industry productions, we have been united and actually we raised changes. Only the fittest will survive. And with impending capabilities, accelerated speed and a strong mindset, our confidence is growing. Knowing that, we have all it takes to win when the market recovers. This year, as the market finally is broadened and on a path to recovery, our one-body housing transaction services, needs took the mounting difficulties in the short run and a focus on resolving problems for customers and service providers as well as improving efficiency. Our two wings, home renovation and furnishing and home rental services need to take root and make its primary thing in integration and rapid development. This is especially true now that we have completed our Shengdu acquisition. We are pleased that we have already realized strong synergies, delivering initial results out of the announced our one-body, two-wings strategy at the end of last year. The powerful growth of our home renovation and furnishing services and home rental services against big market trends further strengthens our belief that we are headed in the right direction by executing our strategy. Let's move to the details of our progress with our housing transaction services in the fourth quarter of 2022. Our housing transaction services is still undergoing a challenging time. During the first quarter, the new home market remained sluggish due to the strength of private developers that the crisis-related impacts from government's buy-out policies and low consumer confidence. Meanwhile, a sign of bottoming-out recovery in the existing home market were interrupted by the Omicron outbreaks across various regions toward the end of the first quarter. Faced with the turbulence of this external environment, we must maneuver the market, take quick action and stay focused. Last focus, on our business and organizational planning. Experience tells us that our strong strategy exists. We concentrate on the most fundamental issues, including the efficiency of our agents, making their services more professional and their retention rate higher; improving customer experience by protecting them against risks and uncertainties; and accelerating receivable collections, leveraging our data strengths to optimize our services to developers and enhancing their understanding of the end users. By streamlining our operations and reducing its discretionary investments, we aim to boost our efficiency and profitability. The massive market correction has impacts everywhere in the industry but also changed the overly competitive landscape. And the battlefields becomes less crowded. We are not standing with a war chest to return to our original aspirations. We will take the time and the passions to further refine customer relevance and service providers' capabilities and build upon our strengths to achieve sustainable development. At the end of the first quarter, the number of Beike's connected stores were over 45,700, down 10% quarter-over-quarter. The number of actual stores were around 33,000, declining 5% quarter-over-quarter. As the market continues to fund its product, we added a few new stores on our platform and strengthened existing stores with mergers. The number of industry practitioners continue to fall rapidly. At the end of the first quarter, the number of agents on our platform was 427,000 and the number of agile agencies was 381,000, both decreased by approximately 6% quarter-over-quarter. The number of active stores and agents dropped 30% and 24%, respectively, from the respective peak level in mid-2021, which is in line with our expectations. The COVID-19 resurgence in the second quarter may result in a further decline of the number of stores and agents on our platform. In addition to Lianjia, we will continue to optimize low-productivity and the loss-making stores and a steadily, vastly execute our big store model. This will also play on the number of Lianjia stores and agents and at the same time, drive a notable increase in per agent productivity serving to reduce the aging the true rates. In the first quarter, total MAUs of vehicles app plus mini program reached approximately 39.7 million, up 6% quarter-over-quarter. We expected online traffic to grow as the market recovers. Regarding existing home transaction sources. According to Beike Research Institute, nationwide GTV of existing home sales dropped 52% year-over-year in the fourth quarter, and the GTV of existing home transaction of Beike's platform were RMB 374.1 billion, down 55% year-over-year, for which existing home sales declined 46%, outperforming the overall market. The existing home transaction volumes in some key cities were starting to bottom out in the first quarter, but the market rebound was interrupted by COVID-19 resurging in mid-March. Confronted with a series of external uncertainties we are adhering to the principle of efficiency first, in our existing home business. First, we will reduce the size of the managing units of our stores and agents through a more refined and a [ grid-based ] management. We aim to optimize efficiency and better manage key operational -- operating metrics such as collaboration indicators. Second, we will enhance our capabilities in existing home sales with a focus on critical notes in the transaction, including the home listings, customer leads and home tools. We will leverage our Big Data and technical capabilities to find the best listing that we call [ Beike's Pick ], and do our outmost in the listing maintenance, home showing and the sell-through of these listings. We will also reconstruct our business leads distribution to improve homebuyers' coverage and sales conversion. From the technical point of view, the broad VR application during the pandemic boosted our efficiency after the lockdown in Shanghai since mid-March due to the quarter COVID-19 resurgence. The weekly online leads generated in VR streams and VR home tools increased by more than 70% and 130%. Behind these achievements, with an immersive virtual home tools experience made possible by our VR technology, which transcends the limits on time and space, it has supported real-time interaction between customers and agents with sales and sales consultants on our share screen throughout the tool, providing a more intuitive and enriched experience compared with photos, text or videos. VR is an efficiency -- efficient substitute to our puddle offline operations and is an ability our peers do not have. This year, Lianjia will spearhead productivity and quality enhancement. First, we will be efficiency-oriented and improve agents' per head productivity. In addition, we will optimize and discontinue low-performing stores. Senior management must personally walk into each store and engage in-store's level operations. For customers, we will emphasize our [ ancient ] services commitments and fulfillments. Our efficiency-oriented strategy choices do not mean that we are diluting of delays. Transactions in Shanghai have been suspended for more than 2 months due to the pandemic placed with many choices at this difficult time. We did not lever and institute on guaranteeing the full base pay and welfare for agents in Shanghai, putting admirable sources, caring for agents into action. We will brace ourselves through a low return period to reduce agent turnover, which will bring high returns in the future. We believe, this is the right choice and what we consider an essential investment. Most importantly, we will uphold, as always, our business philosophy of community friendly and devote more community outreach and engagement to do what is within our capabilities for those in need. During the COVID-19 outbreaks since March, our agents have served the community and have become a key team among communities volunteers. Beginning on April 23, volunteers from Beijing Lianjia alone provide pandemic provision and control services 26,400 times. More than 3,000 agents in Shanghai Lianjia volunteered to combat COVID-19 on the front lines of 854 communities during the lockdown. In cities such as Suzhou, agents from [ connected ] branch and Lianjia actively participated in voluntary services more than 1,900 times, taking community pandemic prevention, testing, necessities delivery and other services with volunteers who can reflect our strong bond with the community. We believe that community services will infinitely fill our future as more frequent touch points allow our stores and agents to truly integrate into the communities. More importantly, this is how we turn our belief of taking care of our customers into more practical actions. Turning to new home transaction services. According to national [indiscernible] statistics, in the first quarter, the overall market GTV or new residential home sales was down 26% year-over-year, making it the second largest single quarter decline since 1999. Meanwhile, the GTV of CRRC's top 100 real estate developers fell by 47.6% year-over-year against with that drop, the GTV on new home sales on Beike's platform was RMB 1,092.7 billion, decreasing by 24% year-over-year. The new home market continued to decline with no sign of recovery in the first quarter, a trend delivering from that of the existing home market. The ongoing debt crises that developers face has made home buyers increasingly risk-averse and slow sales leads to the future deterioration of the developers' liquidity condition. On the other hand, land auction prices fell and percentage of state-owned developers increased consistently. In the current period of market correction, we will strike a balance between scale expansion and risk management. First, we motivated agents to focus on low-risk projects and reduce high-risk projects collaborations in the short term, while advancing the commission in advanced model to ensure the collection of receivables and accelerate sell-through of high-quality projects, altogether posting a virtuous business cycle. In addition, we refined our corporate -- to corporate collaboration. With state on developers and high-quality developers to explore good increase in incremental sales opportunities as we boost sales standardization and scientific innovation, management capabilities with our partners. We endeavor to jointly build a healthy ecosystem. On top of that, leveraging our advantage with our unique, comprehensive residential housing data, we are extending our reach to the strong end of the industry value chain to develop more services and products to have developers efficiently enhance their customer reach, research, project assessment and sales conversion. Next, moving to our progress and plans for our two-wings business. Despite the market headwinds, our home renovation and furnishing services achieved remarkable growth in the first quarter. We also completed the acquisition of Shengdu at the annual [indiscernible]. The synergies created between Shengdu and Beike are clearly reflected in the significant improvement in traffic sharing and in supply chain delivery and operational management, propelled by these improvements on the approved former basis, assuming Shengdu with fully consolidated home renovation and furnishing in the first quarter would show a 54% increase year-over-year to RMB 850 million, contracted sales will have increased by 63% year-over-year, driven by 8% increase in average contract price in addition to 50% growth in a number of contracts, which reached close to 600 and 500 or 6,400 in the first quarter. In stark contrast, the total output value of the home decoration and renovation industry declined by 25% to 30% year-over-year in the first quarter according to China Building Decoration Association. This year, our overall strategy remains focused on building our well on-stock solution for home furnishing as we continue to leverage assets directly from housing transaction sources, innovate new retail models and build a better place for home furnishing sales. Our core business transaction services provide strong support for home renovation and furnishing services. In the first quarter, the referral customers from our core business contribute roughly 23% for home renovation and furnishing contracted sales, almost all will add incrementally to our top line. We expect this ratio to reach over 30% in the second half of the year. In Shanghai, Beijing [ customer referral ] accounted for a remarkable 77% and 75% of all its contracted sales, respectively. Our progress in major cities has been especially exciting. Contracted sales in Shanghai, Wuhan, Shengdu and Beijing increased from approximately 550%, 219%, 100, and over 130% year-over-year, respectively. In the first quarter, Shengdu's more comprehensive supply chain and massive SKUs under management also further boosted our products diversity and scale, assisting us in achieving higher customer satisfaction and average contract price. In the future, we'll been leveraging our home SaaS system as a supply chain management tool to expand the scale of back procurement and further reduce procurement costs while ensuring supply. We expect to project delivery, re-enhancing the quality and across measured on our products, and at the same time, shorten the construction and delivery cycle by utilizing our online home SaaS system in conjunction with our off-line management. Throughout systematic and scientific project management, the worst delivery cycle has reached an industry-leading level of 98 days in the fourth quarter. We aim to shorten our overall delivery cycle from 130 days at the beginning of the year to 120 days at the end of the year. Meanwhile, we strive to consistently enhance customer satisfaction through construction about back-end services, smart construction site, customer NPS management and compensation measures. Moreover, our home furnishing revenue is consistently growing. In the short term, we will continue to deliver to drive back-end sales of customized furniture, appliances and other categories with high gross margins through our home renovation services. In the fourth quarter, thanks to our rich SKUs and improved sales, [indiscernible], Shengdu and Deyou's contract price increased by 7% and 21% year-over-year, respectively. Home furnishing accounting for 10% of total contracted sales in the first quarter and made up 30% of contracted sales in Hangzhou flagship stores. With the full integration of Shengdu, our home furnishing and renovation sources have entered a more rapid development phase. We target mostly contracted sales to exceed RMB 1 billion and monthly contracted sales in Beijing, Shanghai and Hangzhou to surpass RMB 100 million each sometime in the second half of the year. During the first quarter, our development approach for Beike home rental services become increasingly clear. Our lite rental property management services, Tier-3 rent achieved groundbreaking progress with over 5,000 units acquired in the first quarter. During the first quarter, our unit under management having extended from 3 cities to 8 cities and by 37% quarter-over-quarter increased to reach nearly then [ 97,000 ]. By the end of this year, we aim to have more than 50,000 units on the management in our Tier 3 rental model. We believe that our Tier 3 rental model can transfer the dispersed rental properties in the market into high-quality, reliable, professional management and institutionalized long-term rental properties. Meanwhile, with respect to centralized apartments, our first-use apartment project that we participated in using our light custodial operations approach, Beike new apartments launched in Shanghai, Xuhui district in the first quarter. The project has a total of 2,978 apartment unit amongst rental as low as RMB 2,700, and its occupancy rates have reached 98% today. In March, we launched our [ 2 Lights ] services guarantee program to protect the rights and interest of both tenants and homeowners. The system provides loss compensation, covers the most concerning issues such as commission, rent and property and personal setting throughout the allowing quality and worry-free rental services to be truly accomplished. In the first quarter, 2 Lights commenced operations in Shengdu and Shanghai, followed by developer -- developments in more cities. Finally, I would like to thank all investors for their support. Beike was successfully listed on the main board of Hong Kong Stock Exchange by a way of introduction on May 11. This represented the sum of home for our journey forward and empower us for our next destination. The substantial uncertainty we face right now reflects the challenges our business has always faced from Lianjia to Beike. All our efforts have been centered on reducing the uncertainty of our business and providing value to the industry with service that perform against the uncertainty of information with authentic listings against the uncertainty in our cooperation through our agent cooperation network and against the uncertainty in customer choice through the optimization of our products. We reduced uncertainty with service providers capabilities through training, certification and examination and combat the uncertainty in service through our steadfast commitment to service qualities. Our organization has spirit. It grows more united when changes are greater and at the same time, more confidence about the future. Therefore, the recent market change, unprecedented though they may be, do not change who we are as an organization and even sought to strengthen our sales to accelerate our sales operation. There is no doubt that we are being tested this year on multiple fronts. Our housing transaction services must brave the many changes in its operations, while our tool wins must build solid underlying capabilities and collaborate. Decisive actions are a must for our whole organization to streamline costs and yet leaner while maintaining our vitality. Here, not a strong past, iron clad on all sites, we uphold our belief that as we overcome these obstacles, we will emerge stronger with new capabilities and lower structural costs. The steps we are taking today will solidify our concentrate foundation and empower our development for the next decade and sustain value creation for our customers, service providers and shareholders. With that, I would like to turn the call over to our CFO, Xu Tao, for a close review of our first quarter financials. Thank you.

Thank you, Stanley. Thank you, everyone, for joining us. Before I discuss more detail about our first quarter 2022 financial results, I would like to provide a brief update of our recent housing market. During the first quarter, more and more cities have raised [ curves ] for the home purchase to support the aging property market. After a variety of policies is on with unprecedented frequency and intensity pushed the sector into a deep trail in the second half of 2021. These measures to boost demand increased the subsidies, small fund payments, reduction in mortgage rates and the rates on the rooms for the home purchase. The EV stocks have brought some funds of recovery. According to Beike Research Institute, the decline of GTV from its in-home sales narrowed to 60% quarter-on-quarter in Q1 compared to 21% and 32% in 2021 Q4 and Q3, respectively, whilst the new home construction remains soft as many developers are still facing liquidity challenges. The first quarter also saw the resurgence of COVID-19 variants in many cities in China, including [ Manxin ], infection in Shanghai, which went into a city-wide lockdown with varied mobility restrictions and other local level control measures in place. Our operations in those areas have been adversely affected under which our local stores have been closed temporarily and the transaction has been disrupted. However, as we experienced in the first half of 2020, consumers increasingly demand higher standard of living conditions. After COVID -- after outbreak of COVID-19, the demand has been -- become even stronger. Therefore, we believe that the pent-up demands will be released in the subsequent period with the reopening of the economy in the foreseeable future. As end of April, China's top leaders signals more loosening in the bid to mix economy. The [ Politburo ] meeting is primed to support the refinement of the local property policies and optimizing the developers, presale funding regulations. We believe those supporting prices will revive housing market sentiment and the buying demand, and the home sales should be gradually rebounded. To summarize, housing market recovery was augmented and temporarily disrupted by COVID-19 in Q1 with muted overall construction volume. We were able to utilize the opportunity to further optimize our execution and the lay the groundwork to be better positioned for the market recovery. Turning to our financial details in Q1. Our net revenue decreased by 39.4% to RMB 12.5 billion in Q1 from RMB 20.7 billion in the same period of 2021, in line with the high end of our guidance and exceeded the Street consensus. The decrease was primarily attributable to the decline in total GTV of 45.2% to RMB 586 million in Q1 from RMB 1,069.6 billion in the same period of 2021 due to the continuing rebound trend of the GTV of the market for the aging home transaction and the new home transaction since the second half of 2021, the emergence of COVID-19 in certain regions and the corresponding restrictive measures in Q1, and a relatively high base of the same period of last year. In particular, our net revenue from existing home transactions services were RMB 6.2 billion in Q1 compared to RMB 10.2 billion in the same period of 2021, primarily due to a 44.5% decrease in GTV of existing home transaction to RMB 374.1 billion in Q1 from RMB 673.4 billion in the same period of 2021. Our net revenue from the new home transaction services decreased by 40.5% to RMB 5.9 billion in Q1 from RMB 9.9 billion in the same period of 2021, primarily due to a 43.9% decrease in GTV of new home transactions of RMB 192.7 billion from RMB 343.4 billion in the same period of 2021, which was partially offset by a moderate increase of the commission rate of the new home transactions. Our net revenue from emerging and other services were RMB 0.5 billion in Q1 compared to RMB 0.6 billion in the same period of 2021, primarily attributable to the decrease of net revenue from financial services, which was partially offset by the increase of net revenue of home renovation services. Cost of revenues decreased by 35% to RMB 10.3 billion in Q1 from RMB 15.9 billion in the same period of 2021. Gross profit was RMB 2.2 billion in Q1 compared to RMB 4.8 billion, the same period of 2021. Gross margin was 17.7% in Q1 compared to 23.3% in the same period of 2021. The decrease in gross margin was mainly due to: One, a lower contribution margin of its existing home transaction resulted from relatively high percentage of fixed compensation costs for the Lianjia agents; and two, a relatively higher percentage of costs related to store of net revenues as a result of decrease of net revenue in Q1 compared to the same period of 2021. Operating expenses decreased by 17.5% to RMB 3.1 billion in Q1 from RMB 3.8 billion in the same period of 2021. General administrative expenses were RMB 1,528 million in Q1 compared to RMB 2,108 million in the same period of 2021, mainly due to the decrease of provisioning of credit losses and personnel costs. Sales and marketing expenses were RMB 861 million in Q1 compared to RMB 1,057 million in the same period opportunity of 2021, mainly due to the decrease of brand advertising and the promotional marketing activities. Research and development expenses were RMB 749 million in Q1 compared to RMB 638 million in the same period of 2021, mainly due to the increased personnel costs. Loss from operations was RMB 918 million in Q1 compared to income from operations of RMB 1,013 million in the same period of 2021. Operating market was negative 7.3% in Q1 compared to 4.9% in the same period of 2021, primarily due to: one, a relatively lower gross profit margin; and two, an increase of the percentage of total operating expenses of net revenue as a result of the decrease of net revenue in Q1 compared to the same period of 2021. Excluding non-GAAP items, our adjusted loss from operations was RMB 450 million in Q1 compared to adjusted income from operations of RMB 1,564 million in the same period of 2021. Adjusted operating margin was negative 3.6% in Q1 compared to 7.6% in the same period of 2021. Adjusted EBITDA was RMB 341 million in Q1 compared to RMB 2,015 million in the same period of 2021. Net loss was RMB 620 million in Q1 compared to net income of RMB 1,059 million in the same period of 2021. Excluding non-GAAP items, adjusted net income was RMB 28 million in Q1 compared to RMB 1,502 million in the same period of 2021. Net loss attributable to KE Holdings Inc.'s ordinary shareholders was RMB 618 million in Q1 compared to net revenue -- net income attributable to KE Holdings Inc. ordinary shareholders of RMB 1,059 million in the same period of 2021. Adjusted net loss attributable to KE Holdings Inc. was RMB 29 million in Q1 compared to RMB 1,502 million in the same period of 2021. For the first quarter of 2022, diluted net loss per ADS attributed for KE Holdings Inc's. ordinary shareholder was RMB 0.52 compared to diluted net income per ADS attributable to KE Holdings Inc. ordinary shareholders of RMB 0.88 in the same period 2021. Adjusted diluted demand income for ADS attributable to KE Holdings Inc. ordinary shareholders was RMB 0.02 compared to RMB 1.25 in the same period of 2021. Next, I will talk about the listing update regarding our capital market and operational initiatives as well as our near-term focus on corporate financials. Firstly, Beike successfully primarily listed on the Main Board of the Stock Exchange of Hong Kong by way of introduction on May 11. [indiscernible] listing, which has been adopted by many other U.S.-listed Chinese firms requires a higher threshold and stricter procedures. It also lowers to maintain our primary listing status on Hong Kong Exchange even under the most extreme cases if our company delists from the New York Stock Exchange 2 years later. Meanwhile, unlike [indiscernible], we didn't issue new shares or raised additional capital by way of introduction, enabling us to avoid dilution to our shareholders' interest. So Hong Kong listing is a solution for us with a full responsibility to tackle certain uncertainties and risks and to protect the best interest of our shareholders. Secondly, for one of our 2 wins business, home renovation and the furnishing services, we successfully completed the acquisition of Shengdu in mid-April. The combination will further leverage respective advantage from both sides, which will allow us to replicate our model more rapidly and scale to empower the industry. Shengdu will be consolidated into our financial statement since May of this year. With Shengdu gaining transaction from Beike's strong resources and support, revenues of our home renovation and furnishing services are expected to grow more rapidly in the future. Secondly, we recently carried out personnel restructure and remake with a focus on middle and back offices. We executed similar initiatives for our financial services business back in Q3 of 2021 in order to be more focused on the developments of our core business, including approximately RMB 250 million in service provision for that period. At this time, we made a really difficult choice due to the uncertainties associated with the recovery of the new home market and the reemergence of the COVID-19 outbreaks in certain cities, and based on our prediction of the mid-term market dynamics. It was a big change that we made in a preemptive manner, and we started around RMB 430 million severance provision may be incurred in Q2. By doing this one-off adjustment, we believe our personnel structure will be further optimized, and we will be able to be better carry out our business during the tough market. Fourthly, we believe our strong cash dilution capability and the sufficient liquidity will ensure the company can navigate through the market cycles and the companies that fallout from the COVID-19 outbreaks and its uncertain impact from the relatively strong recovery of the housing market. As of March 31, 2022, our cash, cash equivalents, restricted cash and short-term investments were RMB 50.2 billion or USD 7.9 billion. The balance of our long-term cash items, mainly including long-term investments, amounting to RMB 18.9 billion or USD 3 billion. In addition, we also announced today that we will propose to establish a share purchase program, under which we may repurchase up to USD 1 billion of our ADS over a 12-month period, subject to obtaining a general mandate from our shareholders at the general meeting to be convened by the company. The move underscores our confidence in the fundamentals and the long-term growth of our business. Turning to the guidance for the second quarter 2022. Considering the housing production market is still at the early stage of recovery and the potential negative impact of the COVID-19, continued measures in certain regions as well as the higher base effect of the same period of 2021, we expect the overall market GTV of existing home sales to over 60% year-over-year in Q2. And overall market GTV of new home transaction to decrease over 50% year-over-year in Q2, according to Beike Research Institute. Based on all of our above considerations, looking forward to Q2 2022. We expect the total net revenues to be between RMB 10 billion and RMB 10.5 billion, representing a decrease of approximately 56.6% to 58.6% from the same period of 2021. This forecast can see the potential impact of releasing the real estate related policy measures, the emergence of COVID-19 in certain regions and corresponding restricted measures, which remain uncertain and may continue to diversely affect our business, the company's current and previous view on the business situation and the market conditions, all of which are subject to change. Today, I'd like to reiterate our consistent beliefs. While we focus on weathering the short interprets, we are devoting more effort to developing and investing in our long-term capabilities, even if it might take time to achieve financial returns on this investment. In fact, the longer it takes and the more difficult it is, the more excited we become. Although China's housing market has undergone deep adjustment last year, anticipating uncertainty from the COVID-19 outbreaks in the first half of this year, we believe that China will eventually win the battle against COVID. In the long run, we also believe with the establishment of long-term housing market mechanism, the ongoing repetition trends, the change in term structure to resource mobility among the city clusters as well as government emphasis on the improvement of the people's living condition, there is a tremendous position for us to install, transport and upgrade with the service sector of better living. Starting with the vertical penetration to [indiscernible] the industry practice and the protocols, followed by horizontal function to integrate the entire industry, harping our proven path to success. It may not be a shortcut, but it is a path that's rooted in our culture of doing the right things over the quickest type of things. We'll lay full faith in it as we ignite our 'One body, Two wings' strategy and believe it will work in long-term benefits to the industry and our customers. All in all, we fully embrace the challenging changes and [indiscernible] reason with determination and responsibilities. We will always be self-motivated, driven by our long pursuit goal to create new dispensable value for the industries. To that end, we will never stop. That concludes our prepared remarks. We would like now to open the call for questions. Operator, please go ahead.

[Operator Instructions] Our first question is from Steven Tsai with Morgan Stanley.

[Foreign Language] My question is about industry outlook. Could management share with us your view on the current market conditions and the sales trends on your platform for both existing homes and new homes in the quarter to date? Also the pandemic has broad impact to now just the property transition market, so impacting the overall employment and the consortium sentiment. In that context, how should we think about the timing and the trajectory of post the lockdown recovery? At the first quarter earnings call, you mentioned that you were expecting the new home market to decline 5% to 10% and existing home market to decline over 10% year-on-year in the full year of 2020. Just wondering if there is any changes to that expectation.

Thank you, Steven. Let me take your questions. Since the beginning of this year, positive policy signals have been released continuously from the top down, especially for the mortgage rate have volume for the 9 to 12 months. In April, nationwide first -- second home mortgage rate reached the lowest level since 2019. LPR and the first home purchase mortgage rate has lowered to around 4.25%. Mortgage origination cycle lines has also dropped from 73 days anticipate to 29 days in April, making the smallest mortgage approval cycle since 2009. Risk management continue to be implemented at society level. From our observation, at least more than 30 Tier 2 cities, including Qingdao, Suzhou, Changsha, Wuhan et cetera, have released the easing policies, and the policies have been leveling up. The easing steps include relaxing the purchase restriction, reducing the down payment initially, and issuance of home purchasing subsidies. These policies have been placed positive role in promoting market transactions but in fact, it's relatively limited. I'd like to take Shengdu as a showcase. The making measures to stabilize [indiscernible]. This means the restrictive policies imposed in past 2 years all vitalized. That demonstrates the government's significant decommission to boost the market. As a result, existing home sales market transaction volume rebounded notably. Nevertheless, in April, due to the continued liquidity crisis faced by the developers and the impact of the pandemic, the existing and new home sales market, both began to weaken. Looking more broadly, while the easing policies were implemented as is guided, the market remained sluggish for the following reasons. For example, the restrictive policies have not been loosened to use [indiscernible] markets, such as Xinjing, Beijing and the Shanghai. And more importantly, the service of market correction measures in 2021 brought about presentative results with only one thing lost, that is confidence. But the thing is that crisis faced by developers has made homebuyers increasingly risk-averse. The severity and the momentum of the economy downturn have also affected the homebuyers expectation with respect to the future income as well as the risk. The evolving pandemic situation and the respective normalized control measures further aggravated homebuyers, the [ failing of opportunity ] and make this transaction more difficult. Specifically, existing home sales market began to pick up after Chinese New Year as the market bolting out in the first quarter, but further subsequent recovery was interrupted by the pandemic. According to Beike Research Institute in the first quarter, the GTV of existing home sales marketing in China fell by 50% year-over-year and 60% quarter-over-quarter. The price trend shows divergence at city level, working steadily in particular cities and fluctuating in the second tier cities and the third tier cities. Beike's existing home transaction GTV fell by 44.5% year-over-year in Q1. Our existing home sales volume rebounded in February than March with month-over-month growth rate in March reached 45%, and the sales returning to the level of the 2021. So COVID outbreak increased since middle March interrupted the pace of the housing market recoveries as well. Regarding the new home sales market trend, this divergence from sales of the existing home market, the gross momentum continued to be lackluster and anticipate the [indiscernible]. In first quarter, the GTV of core or top 100 real estate companies fell by 47.6% year-over-year. According to data from National Bureau of Statistics, the GTV of the residential home sales across countries was down 56% year-over-year, making the second largest single quarter decline since 1999. The year-over-year decline in relative cities has been significantly larger than the high tier cities. Along the same trends, the GTV of the new home sales on Beike platform decreased by 44% year-over-year. Looking ahead, in the short run, there are still many uncertainties in the short term with respect to the new home market due to the following reasons. The first is the persistency of the fresh tranche of private developers. And second, it will take more time for the easing policy to take effect. And thirdly, we saw this the consumers are more concerned about whether the [indiscernible] developers can give houses and the quality of this newly built houses. And number four is the evolving pandemic along with the respective control measures. However, in the long run, we still remain quite confident because of residential demand for quality living remains very strong. We believe that the existing homes [indiscernible] that has easing policy taking effect and the pandemic closed. So market is rebounding to recover under the transaction while retentions are normal. Regarding -- so your second question is, actually, resurging pandemic in many cities since the first quarter this year will make a significant impact on the company's performance in the first half of this year. At the same time, we will continue to monitor the evolving situation of the pandemic to offset the impact to our full year's performance. Since March, the COVID outbreaks resurgence [indiscernible] 30 top tier cities and [indiscernible] the pandemic continuous measure will put forward. Roughly 60% of existing home sales were impacted by the pandemic in Q1 and at least 25% of existing home sales are expected to be affected in Q2. As such, the pace of market recovery is delayed. In Shanghai and neighboring cities in Yangtze River delta, the transaction during about half of 1 month in Q1 were affected and the transaction during at least 2.5 months [indiscernible] in Q2. In April, 100% of stores in Shanghai were closed. According to our conceptual estimates, transactions in Shanghai will come nearly to standstill throughout Q2. In Beijing, at least 60% of transactions are expected to be impacted by the pandemic in Q2. Most of 60% store are temporarily closed and more than 60% of the temporarily closed remain. We've seen areas where we operate approximately [ 130 ] communities are under the pandemic lockdowns or restrictions, 50% of our new home sales project are suspended for the onsite [indiscernible]. However, we'd like to reiterate the housing demand is a [ real ] demand, which will only be delayed rather than despaired, and we expect the booming market right after the post pandemic. Based on our experience in early 2020 as well as more recently, transactions suspended during the lockdown will be completed after pandemic subsides. Locking this pent-up demand during the pandemic period will help us grow rapidly when the pandemic is over, which means that with the longer time horizon, the pandemic's impact on our business is relatively small. I'd like to take Shengdu as a showcase, which went down on the lockdown beginning on March 13. These are two weeks that followed because weekly existing home sale in Shengdu experienced sequential decline of 65%. However, during the 2 weeks after lockdown, early in April, our weekly volume increased subsequently by 400%. It was also 75% higher than the 2 weeks pre-lockdown making up for almost all type losses incurred during the lockdown season. The degree of demand that will be released post-pandemic will also depend on the extent of the local easing policies in various cities. This is a fact as well as the homebuyers income situation and other factors. Thank you, Steve.

Our next question comes from Timothy Zhao with Goldman Sachs.

[Foreign Language] Congrats on the very solid results. My question is regarding the new home transaction business. Could management provide any breakdown between SOEs versus private developers in terms of GTV and any difference in terms of commission rate? And what is the impact of SOE's concentration rate increase on your business? And how is our business model are going to change along with that? And also on account receivables also related to the new home business. Does management see further need to book provisions as we see the decrease in the quite large provision actually had a positive impact on the G&A cost in the first quarter?

Thank you, Timothy. Let me address your question. Regarding the first question, the state and the central government owned developers concentration ratio has been increasing. This is actual. From the land auction perspective, in the first quarter, state and central government owned developers bought 71% of all option. And in terms of the sales, according to Beike Research Institute, of the top 100 developers GTV in Q1, city-owned developers accounted for 28%, representing an increase of 2% quarter-over-quarter and 5% year-over-year. Of the top 10 developer sales still owned developers accounted for 37%, representing an increase of 7% year-over-year. On the Beike platform, the percentage of the state and the central government-owned developer has increased as well. The state and central-owned developer GTV as a percentage of Beike new home sales has been increased to more than 25% in Q1 from nearly around 20% in the early of 2020s, representing 1.3% quarter-over-quarter increase and about 3% year-over-year increase. From the impact on the Beike due to the increased contribution of the state and central-owned developers, we want to emphasize that, regardless, whether the developer is state owned or private, there are only two factors that could impact a developer. The first is the relative commission rate and the second is better risk. These two factors largely offset developers. The trend of the increasing brokerage service penetration rate will remain unchanged, I want to emphasize on this. In the long run, regardless of whether developers stated owned or private, they face the same pain point in customer acquisition and have the same strong dependency on the sales channels. As such, a continuous increase in the brokerage service penetration rate is -- certainly undergo now change. Based on Beike's data, broking service penetration rate of the state-owned and private developer are also at the same level of the [ rate ] every year. The key factors determine both brokerage service penetration rate and the commission rate with a degree of the new home project and unused separation. As cities continue to respond, new land will become increasingly distant from the city center, which further increase the separation between the new home projects and end user. As a result, whether developers, state owned or private, the lack of the concentration and the connection to the end user will continue to grow. Self-built sales channel has become paradox under the new investment of the so-called black iron age of the real estate. Brokering service is still a necessity. Beike [indiscernible] when it becomes collaboration with the sales channel, we are the brand of choice. This is a goodwill on recognition for mostly 100 million families in China. We can truly help developers to effectively connect end users and increase the sell-through, which give us relatively competitive advantage under the new industry model. For the commission rate state-owned developers, commission rate indeed is relatively lower, similarly their [ base ] ratio. Therefore, the impact of higher concentrate of the state-owned developer on our profit margin is neutral. Still developers average commission rate is 20% lower with that of private developers, owing to state-owned developments, the project are being closely to the city center resulting in a low degree of separation into the project and user. At the same time, the financing costs for state-owned developers is relatively low. Hence, the requirement for selling and other agents is now urgent. However, from an operating profit point of view, I think risks of the [indiscernible] from state-owned developers are quite low. The increase of state-owned developers will help to lower our better ratio, partially offsetting the impact of reduced commission rate and the operating profit. Generally speaking, the impact of higher percentage of state-owned developers, however, profit margin is roughly neutral. Regarding your second question is, 4th April, as always, we perform very prudent accounting treatment and also booked a profit provision for all agent receivables and the timely [indiscernible]. So in the past quarters, we almost booked all of the sufficient provision for all of the potential risks from developers who have negative public opinion or who have some financial crisis. One more thing to mention is on May 12, Sunac announced that the increase on the U.S. dollar-denominated senior loans was passed through. Based on the principle, the prudence in the accounting, we will make a better provision on Sunac's receivable with the highest provision ratio. At end of Q1, the balance of accounts receivable and other receivables of Sunac was RMB 1.2 billion, of which RMB 790 million was fully covered by collection. For the remaining RMB 450 million without collection, we increased better provision from the 20% in Q1 to 85% in Q2. As a consequence of this, the impact we seen a better provision adjustment are P&L in Q2 could be RMB 260 million.

Our next question comes from Liping Zhao with CICC.

[Foreign Language] Shengdu started to consolidate in April this year, earlier than previous expectations. Could you please share the integration process? And is there any updates on this year's revenue contribution considering the tightened COVID control in certain cities in the second quarter?

[Interpreted] Yes. This is Stanley. Let me quickly address your question. I actually has been mentioned a couple of the metrics as well as updates during my prepared remarks. And later, I'll give you more details. I want to just give you more details in terms of the fundamental sinkings, and we truly believe all those kind of operational results is based on those kind of business philosophies as well as thinking behind that. Yes, we truly believe between our One body housing transaction business and the Two wings in new business there are a lot of synergies between that, especially the resources are sharing. For example, in the housing transaction business, we actually have a very strong potential to continue to provide a bigger potential customers to refer into the housing declaration as well as other services. Secondly, in the past 2 decades experience from Lianjia to the Beike era, we actually has been accumulated a series of the methodologies, especially if you look at the nature for the home decoration and furnishing business, there are a couple of features such as overall procedures extremely prolonged. The participating rules are very complicated as well as customers' decision-making procedures are very heavy, right? So all those kind of features, we truly believe our experience and methodology accumulated from housing transaction, obviously, we can replicate those kind of experience into the new business. And meanwhile, we also accumulate a bunch of the know-how in terms of the existing management, data management as well as a service commitment. And we do believe by all those kind of empowerment, we can provide a different kind of services into the housing decoration business in the future. And meanwhile, we truly believe our new business also is era, which -- in the field, which inspire us. We always ask a question for ourselves. If not us, who will be change of the industry, right? So we do believe, as I mentioned in the second part, all those kind of expertise as well as the inspiration could we help us to continue bring a better role in the housing, in the home decoration as well as the home rental new business part. So we strongly recommend you, when you look at all those kind of data similar like what we're sharing internally is we want to make a balance between the speed of the growth as well as the quality of the growth. So we are, as an organization, always focused on long-term result, right? So for example, for the home decoration business, we want to make a balance, amount of the quality, efficiency as well as the scalability. So we look at the data such as, for example, like one per month, the overall contract revenue could surpass RMB 1 billion. So we do believe by all those kind of efforts in the foreseeable future, we can reach to all those kind of goal. So in summary, in the long term, from myself as well as the team, we are not worried about growth for the business. But beyond that, we more look at it on the customer satisfaction, we all look at how we can be using the online substitutes as well as other technical ways to continue to bring the difference into the industry. And that's my answer. Thank you for your question. Back to you operator.

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 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. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]