Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc.'s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting.

Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holdings or Beike's second quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on our company's IR website, investors.ke.com. On today's call, we have Mr. Stanley 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 development, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statements in our earnings press release. Please 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 the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead.

Thank you, Siting. Hello, everyone. Thank you for joining Beike's second quarter 2023 earnings conference call. In the first half of the year, our performance improved significantly compared with the same period last year, with 43% year-on-year growth of our total GTV and 51% year-on-year growth of our total revenue. Although, the housing market, there is a surge and a subsequent adjustment on a quarterly basis compared to the same period last year, China's real estate and residential market as a whole still demonstrated recovery. In addition, during the market correction, we successfully retained service providers, effectively reduced costs and raised our efficiencies, all while rapidly expanding our emerging businesses. This combination of initiatives has enabled us to capitalize more effectively on the market rebound and outperform the market. In the first half of this year, for our primary business or home transaction services, we continue to retain our ACN optimize an ecosystem and refine platform operations while exploring vast [indiscernible], this all propelled our organic growth. The capabilities of our service providers have also extended. Our home renovation and furnishing services have gained reputable momentum. We constructed the industry competitive mechanism to have good, get better and establish capabilities in customer acquisition, conversion project delivery, data, products, supply chain and others. This has led to breakthroughs in our service quality and scale as well as the economic performance of our home renovation and furnishing service businesses, while total contract sales in the first half of the year reached RMB6 billion and total revenue reached RMB4 billion. Going forward, we expect to replicate our success in leading cities to more areas and gradually establish a virtuous cycle across the board. Our rental property management services business has also achieved meaningful developments in the second quarter. The scale of our Tier…

Thank you, Stanley, and thank you, everyone for joining us. Before going into the details of our second quarter financial results, I would like to provide a brief update on the housing market over the first half of this year. The market trends for the first half of the year in line with the projection that we made at the beginning of this year. Overall transaction volume gradually normalized following by the [indiscernible] rebound fueled by the pent-up demand. Since the second quarter, the lingering effects of the pandemic have become more pronounced with the pressure on household income and the employment expectations, sluggish export and declining FDR posing traders to the economy recovery. In the real estate market, diverting the price expectations between buyers and sellers, along with the policy loosening speculations have intensified the market wait and see attitude leading to a deceleration in transaction cycles. Meanwhile, in the high-tier cities, product optimization, [indiscernible] whole market demand have yet to materialize, maintaining optical to the release of the reasonable demand. Under the various factors, the market underwent a noticeable quarter-over-quarter adjustment in transaction volume in Q2. Meanwhile, the home market continues to gribble with the debt risks of developers. Both supply and demand have remained weak due to the constraints of effective new home supply and ongoing consumer concerns about project delivery following a series of defaults by some top property developers. However, we also noticed that the leading indicators of the home demand have been relatively resilient. For instance, the number of home tools made in Q2 remained above the historical average in recent years, which is indicative of the continued underlying strength in overall demand. In general, the overall market saw notable year-over-year growth in the first half of the year. We have always maintained a…

Yes. Thank you. [Operator Instructions] And the first question comes from Alex Yao with JPMorgan.

[Foreign Language] [Interpreted] Can you guys talk about the market -- property market volatility in the first half this year? And also whether the supply and demand structure has changed in the current home transaction market? And finally, how do you think about the market outlook after the recent policy statement? Thank you.

Yeah. Thank you, Alex. Overall, we believe that its in-home market will improve this year from extreme conditions in 2022 at the bottom of the cycle. The recovery trend will strengthen confidence in the market both supply and the demand side have become more responsible to the policy relaxation. The market's recovery and the supportive policies are inspected to eat the lingering effect of the three years pandemic. We believe the China economy cycle has a strong vitality and we believe the property market will usher in a new period of the recurring growth. The new home market faces the risk of concluding the year with a year-over-year decline. Considering the current market recovery pressure, unemployment rate and the rest of the expectation that still require further improvement and the impact of the continued debt crisis that are leading the private developer face. The willingness of the developer to adopt [indiscernible] sales channel continue to increase. Rather than fix it on the overall market scale, we placed a great emphasis on the sustainable, healthy and stable growth of the broker channel sales market. This is our target as market and where we see more opportunity to be benefited. In the first half of the year, we experienced a market surge and subsequent quarter. The rapid increase in the first quarter elevated to market expectations. Since April, the market has been retreated notably with in-home sales on our platform continue to decline from April to June. New home sales also contracted on a sequential decline and showed a year-over-year decline in June for over 28%. The reason for this decrease are three folds: first, the market is normalizing. Second, the market provided expectation was too high. During the normalization, the gap between the reality and the expectations for the dampened market…

Thank you. And the next question comes from Timothy Zhao with Goldman Sachs.

[Foreign Language] [Interpreted] Comment and share yourselves on how we should look at the longer-term growth outlook for the core home construction businesses, including the new home and secondary home transactions as well as what is the room for the further efficiency enhancement in the [indiscernible]. And what is your specific strategic actions in this regard? And any color that you can share on the progress year-to-date would be helpful. Thank you.

Yes. Thank you, Timothy. Benefiting from the better empowerment and the retention of the service providers, effective cost reduction and efficiency enhancement measures during the market corrections, [indiscernible] achieved a rapid growth during the market recovery in the first quarter of this year. Our housing construction services are built on this foundation and continuing to more deeply refine form operations and drive breakthroughs of the [indiscernible] business. This has led to the steady growth of our housing transaction services while allowing [indiscernible] to better meet customer needs and elevated service providers efficiency and income. As for our corporate needs, we are implementing policies according to the distinct key development centers of different regions. In the cities where our exiting connected store are insufficient in scale. We aim to ramp up the connection with high quality stores, while supporting stores ability to recruit agents, conduct suitable training and overall management. The number of our stores in the first half of this year increased by almost 10% from the end of last year and number of agents increased by 17%. Even cities where we reached a certain scale. We are dedicating our efforts to enhancing our efficiency and quality, which are mutually reinforcing and inseparable. On the store front, we are promoting a competitive mechanism based on store ramping, which has also been extended to our new home sales channel. We are also dedicated to promote our large store strategy and are creating dedicated home page for store owners and are leveraging digitalized operation analysis tools to enhance their efficiency in business management and facilitate more in Q2 interaction with our platform. Our next step will help store owners elevate their business on selling and improved the management approach, using online products and the dedicated operations support staff, thereby driving successful store…

Thank you. And the next question comes from Harry Chen with Citigroup.

[Foreign Language] [Interpreted] How is your home renovation and furnishing service business progressing? Any update on the development of your core capabilities. Could you share some key operating metrics and the unique economic model for the benchmark cities like Hangzhou and Beijing.

Thank you, Harry. The progress of our home renovation and furnishing business continue to exceed our expectations. In the second quarter, our home renovation and furnishing service business sustained its growth momentum. The contracted sales reached around RMB3.4 billion in the second quarter, making the first half [indiscernible] sales volume to reach more than RMB6 billion. The year-over-year growth rate in the second quarter continued to reach over 100%. Notably, the home renovation order volume increased by over 90% year-over-year. Contributing significantly to our [indiscernible]. As project condition and delivery accelerated, our revenue for the second quarter surpassed RMB2.6 billion, making a 91% increase year-over-year and 86% increase quarter-over-quarter. In cities where we have the leadership, we have established a virtuous cycle of the skill, quality and economy performance. Beijing and Hangzhou was the fourth cities we entered and are leading the way in establishing virtuous cycle. Just take the net showcase. In terms of the scale, our contract sales in the city exceeded RMB600 million in the second quarter, with monthly contracted sales surpassing RMB200 million for two consecutive months with reported revenue to reach over RMB500 million. [indiscernible] contract sales to exceed RMB2 billion in this year. For Hangzhou, the contract sales volume for the second quarter also reached over RMB500 million and we expect the annual contract sales in this year to reach most RMB1.8 billion. We can now simultaneously initiate and complete sale home renovation units from us in Beijing just is a significant breakthrough for the industry. In terms of the profitability, the quarterly operating profit in Beijing reached RMB 50 million as the monthly operating profit exceeded RMB10 million for five consecutive months. Using Beijing and Hangzhou as guiding examples, we are replicating the model and experience from this well-established city across entire countries.…

Thank you. Next question comes from Miranda Zhuang with Bank of America Securities.

[Foreign Language] [Interpreted] Thank you for taking my questions. So can management elaborate more on the recent organization upgrade and structural change? So what are the changes that have taken place and what are thoughts behind this upgrade?

Okay. Thank you, Miranda. The purpose of organization structure adjustment to establish a new formation to achieve our strategic goals. The strategic and business concept requires new organization structure to undertake and implement them, focusing on joyful living, fulfill career services and aspirate the [indiscernible]. We upgraded our strategy to One Body, Three Wings. Our corresponding organizational adjustments is also an upgrade of our management philosophy and mechanism. The new organization structure is centered on customers and placing the front line at the center of our value creation. We have established 4 business lines that are home transaction services, home renovation and furnishing, rental property management services and [indiscernible], function lines comprising finance, R&D, strategy, quality assurance, human resources, users, compliance, public affairs and corporate collaboration. Together, these are designed to provide joyful living for customers and fulfill careers for service providers. Our business lines will work to take care of our customers, inspiring joyful living for customers in each city and fulfilling careers for different type service providers. The function lines will leverage their professional capabilities to provide good services to hold their defined and company's internal customers and have different cities achieve the goals of the admirable services and joyful living. So these actions, we aspire to get right of our create and big company [indiscernible] and return to under [indiscernible] how we view ourselves, our customers and internal partners. The adjustment of organizational structure lays the foundation for company-wide consensus and invite every individual to participate in very [indiscernible] creation, it will facilitate unifying ideas and goals [indiscernible] of our industry throughout the cycles and return to the natural houses for living and in service of people and [indiscernible] demands of better living. Thank you.

Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Mr. Siting Li for closing comments.

Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations team to 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.

Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.