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 unaudited GAAP financial information as well as unaudited 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 our belief 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 path to get there. We believe, taking care of customers and helping service providers take care of customers is at the center of everything we do. We are resolved to choose the difficult yet right path when facing multiple options. The market volatilities have made our beliefs more real, more certain, have inspired us to reflect on ourselves and more importantly, given us the tenacity to thrive during the cold winter. Meanwhile, we must stay optimistic. In the long term, our target addressable market in existing and new home sales will continue to grow steadily, and the broader living sector will usher in greater opportunities. Swimming upstream, only the brave will succeed. In the recent round of massive industry corrections, we have united and actively embraced challenges. Only the fittest will survive, and with expanding capabilities, accelerating speed, and a strong mindset, Our confidence is strong, knowing that we have all it takes to win when the market recovers. This year, as the market finds its bottom and a path to recovery, our “one body” – housing transaction services – needs to overcome the mounting difficulties in the short run, and focus on solving 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 theme integration and rapid development. This is especially true…

Thank you, Stanley, and thank you everyone for joining us. Before discussing more details about our first quarter of 2022 financial results, I would like to provide a brief update of the recent housing market. During the first quarter, more and more cities have eased curbs on home purchases to support the ailing property market, after a variety of policies, with unprecedented frequency and intensity that pushed the sector into a deep chill in the second half of 2021. Those measures to boost demand include subsidies, smaller down payments, reductions in mortgage rates and relaxed rules for home purchases. The easing steps have brought some signs of recovery. According to Beike Research Institute, the decline of GTV of existing home sales narrowed to 16% QoQ in Q1, compared to 21% and 32% in the 2021 Q4 and Q3, respectively, while new home transactions remain 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 mounting infections in Shanghai, which went into a city-wide lockdown. With varying 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 transactions have been disrupted. However, as we experienced in the first half of 2020, consumers are increasingly demanding higher standards of living conditions. After the outbreak of COVID-19, the demand has become even stronger. Therefore, we believe that the pent-up demand will be released in subsequent periods with the re-opening of the economy in the foreseeable future. At the end of April, China’s top leaders signaled more loosening in a bid to lift the economy. The Politburo meeting expressed support for refining of local property policies and optimizing developers’ presales funding…

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

[Foreign Language] Thank you, management for taking my questions. My question is regarding the 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 brought impact to not only just the property transaction market, but also impacting the overall employment and the consensus sentiment. In that context, how should we think about the timing and the trajectory of post-lockdown recovery? In the forth quarter earnings call, you mentioned that you were expecting the new home market to decline 5% to 10%, and the existing home market to decline over 10% year on year in the full year of 2022. I'm just wondering if there are any changes to that expectation? Thank you.

Thank you, Steven, let me address your question. Since the beginning of this year, positive policy signals have been released continuously from the top down, especially for the mortgage rate, which have fallen for nine consecutive months. In April, Nationwide first and second home mortgage rate reached lowest level since 2019. LPR and first -home purchase mortgage rate cut lowered to around the 4.25%. Mortgage origination cycle length has also dropped from 73 days at its peak to 29 days in April, marking the fastest mortgage approval cycle since 2019. Easing measures continue to be implemented at city level. From our observation I believe more than 30 tier 2 cities, including Zhengzhou, Suzhou, Changsha, Wuhan, etc, have all released the easing policies. The policies have been levelling up. The easing steps include relaxing the purchases restriction, reducing the down payment ratio and issuing home purchase subsidies. These easing policies have played a positive role in promoting market transactions, but the effect is relatively limited. I would like to take Zhengzhou as the showcase. 19 measures to stabilize the market were introduced on 1 March, this means loosening restrictive policies imposed in the past two years all at once. That demonstrates the government's significant determination to boost the market. As a result, existing home sales marketing transaction volume rebounded notably. Nevertheless, in April due to the continuous liquidity crisis faced by the developers and the impact of the pandemic, existing and new home sales markets both began to weaken. Looking more broadly, while the easing policies were implemented as expected, the market remains sluggish for the following reasons. For example, the restrictive policies have not been loosened in cities with the greatest demand such as Shenzhen, Beijing and Shanghai. More importantly, the series of market correction measures in 2021 brought about…

Our next question comes from Timothy Zhao with Goldman Sachs. Your line is now open.

[Foreign Language] Thank you, management and congrats on the very solid result. 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 its business model is going to change along with that. 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 has a positive impact on the G&A cost in the first quarter. Thank you.

Thank you, Timothy. Let me address your question. Regarding 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 auctioned land And in terms of the sales, according to Beike Research Institute, of the top 100 developers' GTV in Q1, state-owned developers accounted for 28%, representing an increase of 2% quarter over quarter and 5% year over year. Of the top 10 developers' sales, state-owned developers accounted for 37%, representing an increase of 7% year over year. On the Beike platform the percentage of the state and central government-owned developer has increased as well. The state and central owned developer’s GTV, as a percentage of Beike new home sales has increased to more than 25% in Q1, from nearly around 20% in the early 2020s, representing 1.3% quarter over quarter increase and about 3% yearoveryear increase. For the impact on Beike due to the increased concentration 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 Beike. The first is the relative commission rate and the second is bad debt risk, these two factors largely offset one another. 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, state owned or private, that face the same pain points in customer acquisition and have the same strong dependency on the sales channels. As such, the continuous increase in the brokerage service penetration rate is certain and will not change. Based on Beike’s data, brokerage service penetration rate of the…

Our next question comes from Liping Zhao with CICC. You're with us now, Liping.

[Foreign Language] Thanks, management, for taking my question. Since 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. Thanks.

[Foreign Language] Yes, this is Stanley let me quickly address your question. I actually has mentioned a couple of the metrics as well the update during my prepared remarks and later I will give you more details. I want to just give you more details in terms of the fundamental thinkings and we truly believe all those kind of operational results based on those kinds of business philosophies as well as the thinking behind that. We truly believe between our one body housing transaction business and the two wings, new business, there are a lot of synergies between that. especially the resources sharing. For example, in the housing transaction business, we actually have very strong potential to continue provide a bigger potential customer referral into the housing decoration as well as other services. Secondly, in the past two decades’ experience from the Lianjia to the Beike era, we actually has 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 the features such as overall procedures are extremely prolong. The participated rules are very complicated, as well as the customer's decision-making procedures are very heavy. So, all those kind of features, which we believe our experience and methodology accumulated from the housing transaction business, we can replicate those kind of experience into the new business. Meanwhile, we also accumulate a bunch of the know-how, in terms of the systematic management, data management, as well as the service commitment. We do believe by all those kinds of empowerments, we can provide a different kind of services into the housing decoration business in the future. Meanwhile, we truly believe our new business, also, is in the ear and field, which is kind of inspired us. We always…

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.