Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.'s Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. Please note that today's call, including the management's prepared remarks and question-and-answer session, will all be in English. Simultaneous interpretation in Chinese is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese language line. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I would now like to 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, Inc. or Beike's fourth quarter and fiscal year 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 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 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. For today's call, management will use English as main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management statements in their original language will prevail. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Thank you, Siting. Hello, everyone. Thank you for joining Beike's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. 2023 was a fruitful year for Beike, not just in terms of business growth, but more importantly, in our organization strength, which foster our team's deeper sense of purpose and buyer dedication in us to move forward and embrace more possibilities. Over the past few years, we have made a series of priority adjustments in our strategy and business operations in the face of challenges. We are gearing up for “crossing the next mountain” to capitalize on the promising residential market with a technology-driven one-stop residential services platform for better living. These efforts have created more hope for our future. Scale-wise, our One Body business has substantially outperformed the market, with our new initiatives are taking off. For profitability, our One Body business has reached historical highs and new initiatives have seen significant improvement in core cities. We have achieved breakthroughs in at least 5 cities in terms of integrated One Body to win business model with service consolidation and end-to-end appearance optimization. More importantly, our organization gain, unity and cohesion. The synergistic development in 2023, guided by the One Body, Three Wings strategy has laid a solid foundation for our company. It has fostered a shared understanding within our organization. We are more certain of the path ahead and our steps are firmer. Now let's take a more detailed look at our performance in 2023. Overall, we achieved strong results in the turbulence market. For full year 2023, we recorded a GTV of RMB3.14 billion on our platform, up 20% year-over-year GTV of existing home transactions grew by 29% year-over-year, with notable market penetration improvements in most of the core cities. Full year GTV of new home transaction rose 7%…

Thank you, Stanley. In 2023, the Chinese growth market deepened with the transformation. So the year started with a concentrated release of untapped demand before moving to gradual normalization middle year. A transient rebound followed in the second half of 2023, built by enticing support policies. The existing new home market shows the differentiating performance with later being affected by the risk associated with the real estate developer stat and limited effect of supply, resulting in continued weakness in supply and demand. In contrast, both GFA and GTV of existing home transaction increased significantly year-over-year, showing homebuyers' preference for rapidly available home. This is an inevitable trend that China's real estate market approaches maturity. Houses are returning to their original purpose of providing a comfortable living environment, bringing earth closer to the vision of joint living. Business involving actual environment, our performance in 2023 demonstrated remarkable resilience guided by our goal of achieving high-quality groups, our series of measures to reduce costs, enhance efficiency and mitigate risk have brought us to significant operating leverage. Our full year revenue reached RMB77.8 billion, up 28.2 percentage points year-over-year. Revenues from existing and the new home transaction services grew by 15.9% and 6.7% year-over-year, respectively. Our home transaction services maintained steady growth with a solid foundation. Revenue from our home renovation and furniture, emerging and other services become new engine growth contributed 24.7% of the total in 2023, an increase of 11.7 percentage points from 2022. Subsequently, revenue from the home renovation and furnishing business was RMB10.9 billion, rising by 74.3% year-over-year on a pro forma basis. Our profitability also increased substantially in 2023. Contribution margin grew by 7.3%, to 47.2% for the existing home transaction services, and a 2.9 percentage points to 26.66% for the new home transaction services, both setting new…

[Operator Instructions] Your first question comes from Timothy Zhao with Goldman Sachs.

My question is regarding the home renovation and furnishing business, as I noticed, the 2023, you had a very strong growth year in this business line. Can management further elaborate what is the driver behind? And what are the key operating metrics that you are focusing on? And in 2024, what is your key focus in the operation of this business?

Yes, we achieved big breakthrough in our home renovation and furnishing business in 2023. As for scale, our contracted sales reach RMB13.3 billion up 93% year-on-year on non-pro forma basis, with revenue growing by 74% to reach RMB10.9 billion. As for profitability, we have 11 cities reported operating profits in 2023. In the 4 cities achieving operation, operating profits of RMB10 million. On the operations side, around 43% of the total contracted sales were attributable to customer referrals from real estate agents in 2023, a remarkable increase of 9.9 percentage points from 2022. Our product portfolio are also more diverse. With our contracted sales of furniture and home furnishings reaching about RMB3.6 billion in 2023, accounting for 27% of total contracted sales, showing a 5.8 percentage point increase from 2022 on pro forma basis assets. These achievements were the result of improvements across our business operations. Our overall expansion was mainly driving -- driven by rapid expansion in core cities. In Beijing and Hangzhou contracted sales exceeded RMB2 billion, and in Shanghai, exceeded RMB1 billion. There were also 6 cities that have contracted sales of RMB500 million. Our breakthrough in scales for the home renovation and furnishing business remaining, I think it's due to 3 reasons. The first, high efficiency -- high efficient synergies between our core and emerging business. The second is more diversified product portfolio and the higher delivery capabilities. Yes, so the business outlook for 2024, we achieved breakthroughs in scale in 2023 for our business to be successful and recognized by customers. The more important thing is customer buying, and the key to this, that is quality. So in 2024, while ensuring steady scale expansion, we have chosen quality as our key word. High-quality delivery is a competitive device in the home renovation industry. For now, we can provide the customer guarantee when facing problems. Going forward, we plan to take preventive measures to reduce problem frequency, finally offering customers a truly hassle-free experience and creating a positive cycle on quality. Right now, the main problem regarding innovation, including construction delays and response slowness and so on, we will take a serious measures to address its pain points in 2024. The first is shortening construction time line by completing more simultaneously. The second is, we will establish roles in charging of the quality control with online and website services to identify and resolve problems as early as possible. While enhancing quality, we aim to achieve further breakthroughs in the scale and operational model in 2024, then we are replicating our model in more cities going forward. Yes, that's my answer to your question.

Your next question comes from John Lam with UBS.

What was the Beike’s penetration rate in the existing home market for 2023? And also, what is the overall focus for the company's existing home business for 2024 this year? We've also noticed that the company's plan to expand the store network, can you share more color on this? Can management also share some insight regarding on this year's strategy for the connected brokerage brands and store.

In 2023, we did quite well in the new home business, achieving significant improvement in scale, efficiency and profitability. In terms of the state market adjustment, we managed to retain quality service providers, that’s been a big reason why we could jump on when the market rebounded at the beginning of last year. On top of that, we actively connect with more quality brands, stores and agents in the second half of last year, while refining our operational strategy and the infrastructure for better efficiency. In 2023, our new home GTV was up 29% year-over-year, and the revenue was up 16% simultaneously. We also significantly increased our market penetration in more cities including like Beijing, Shanghai, Nanjing, Hefei, Hangzhou, Jinan, Changsha and Qingdao, so on and so forth. Specifically, we're focused on a few key areas to boost our existing home business in 2023. We expand our store and agent network. By the end of 2023, the total number of active stores on our platform reached over 42,000, just an increase of 12% year-over-year. The number of active agents on bigger platform was over 397,000, an increase of 14% year-over-year. And we also enhanced our operational efficiency through the following refined strategies, like first, in the face of lots of new and previously inactive listings, we are developing the ability to identify the public listings. We aim to create a virtual cycle of securing high-quality listings by establishing efficient matching tools and the cooperation between the buyers and the sellers agent to ensure they quickly sell and achieving the high customer satisfaction, leading us to secure more high-quality listings and boost our efficiency. And second, we adopt diverse online tools to optimize efficiency. For example, we introduced AI systems to help agents improve their responsive time to the clients and…

Your next question comes from Griffin Chan with Citi.

Thanks management for the opportunity. Congratulations, first, on the solid 2023 results and improving shareholders' return. So my question is that, how do you view the overall real estate market in 2023? How did the market perform recently? With a notable outperformance of the existing housing market compared to the new home market, how does the management think of the underlying reasons? And how is the churn expected for the new and existing housing market in 2024? Will they continue to differentiate?

Regarding the market situation in 2023, there was a lot of turbulence in diverse markets. And overall, it is still in the middle of the deep adjustment. Tariffs virtually be observed. The market is shifting towards existing homes at a faster pace. Full-year existing home GTV nationwide rose by around 20-30% year-over-year. Official data showed that new homes accounted for nearly 40% of the full year real estate transaction volume. This is historical high. The new home market recovery fell short. According to official data, national new home sales declined by 6% year-over-year, while for the new home sales of the Top 100 Real Estate developers dropped by 18% year-over-year. New home sales saw some mild recovery in the first quarter of last year, but then it dropped again, and has been hovering there at a very low level ever since. Housing price continue to adjust. Fourth tier cities home prices saw a faster decline in fourth quarter last year. But overall, fourth tier cities, we see home prices was still higher than the year of 2019. New home prices are stable on hold, primarily due to the structural shift towards high-tier cities. The market supply and demand continue to evolve, leading to what we observe the polarization of the market. For demand side, demand structure keeps changing. Demand for the home upgrade becomes dominant, making up 60% of total housing demand with first-time home buying demand at 30%, and investment demand narrowing to around 10%. Consumers are more inclined to purchase these new homes. Our survey showed customer preference for its new home purchase grew from 23% in June 2022 to 35% in December 2023, while interest in new homes dropped from 31% to 18% over the same time period. Basically, existing home are meeting already first home buying…

Your next question comes from Thomas Chong with Jefferies.

My question is about home housing rental business, which has experienced rapid growth in 2023. Could management team please provide more color on what we have accomplished in this business during the year, last year? And how are we managing the risk about expanding our scale? What is the development plan for the year 2024?

Yes. Let me first summarize the business in 2023. Our goal is to provide homeowners with careful rental services and reliable property management services, also provide tenants with safer and more reliable living experience. And 2023 was a key year for establishing our fundamental capabilities. We prudently expanded our operations scale with our decentralized rental management services. Carefree Rent growing from 70,000 units by end of 2022 to over 200,000 units by end of 2023. We also enhanced our asset operation efficiency and rental service qualities. By end of 2023, so occupation rate of tariff free rent increased by 6 percentage points compared to the year of 2022, reaching 95.1%. The increase in the sales and the lifetime rental property management operations placed a new demand on our operating capabilities. In 2023, we make the following iterations. Number one, we made a significant upgrade to our Carefree Rent model, which greatly reduced the seasonal fluctuations and the risks associated with the failure to release. It also better resisted the rate of continued market downturn on rental prices. Number two, we implemented a refined operation by redefining core roles around the full cycle of rental management, ensure proper starting to smooth out our operation process. Number three, we comprehensively enhanced the service quality around the 7 major pain points of tenants, continually improving our standardized service capabilities. We enhanced our service team's response time and the encouraging pre-emptive problem solving. So in 2013, our -- in addition, in 2023, our apartment business also expanded in SKU and efficiency, with almost than 10,000 housing units on our management. For 2024, first, we have ambitious goals for the scale we manage. Our focus will be primarily is core cities, Beijing, Shanghai and Chengdu will be the key targets for the major growth. Second,…

Your next question comes from Eddy Wang with Morgan Stanley.

My question is regarding the new home business. So we have seen that our new home business have been significantly outperformed the industry performance. So what's the reason behind? And considering that the sales of the new home has been more difficult going forward. Do we expect the penetration rate of the brokerage channel to keep going up? And what's our strategy and outlook for the new home business in this year?

As you said, the China new home market faced a big challenge in the year of 2023. In such a tough market, Beike, we achieved around 7% growth in full year of new home GTV, significantly outperforming the industry. Our operating metrics also reached historical highs. Throughout the year, we deepened our insights into the new home business as the market evolves, and our efforts in the operation and business management also paid off. Operationally, the industry is still on a strong move, shifting to a buyers’ market. Consumers now need more professional services. In the past, with the home pricing was always going up, agents get used to just focusing on listing and to find buyers. This approach is not effective anymore because there is the lack of understanding and insight into the customer needs. To boost the sales conversion, it's the key for agent to think from the buyer side, identify who is buying the new homes and what thereafter. Meanwhile, on the device side, with the weak demand, traditional promotional methods such as the price cards are not working anymore. Developers have a stronger need for the broker services. In the 20 key cities we manage, the proportion of the project developers choose to cooperate with brokerage sales channel reached 82% at the second half of 2023. This is an increase of 11 percentage points compared to the first half of last year. Given this context, and in line with our group's strategy adjustment, last year, we have shifted our new home strategy from a defensive to a proactive manner with a focus on growth and its quality. We deepened our online consumer coverage and insights and established better online presence with initiatives like the live streaming for quality homes. Based on our consumer insights, accumulated user…

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

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