Hello ladies and gentlemen. Thank you for standing by for KE Holdings, Inc. Second Quarter 2024 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'll 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 Inc., or Beike's Second Quarter 2024 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. On today's call, we have Mr. Stanley Peng, our Co-Founder, Chairman and Chief Executive Officer; and Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release which applies to this call as we will make forward-looking statements. Please also note that Beike's earnings press release and these conference calls 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 call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in these calls has been obtained from various publicly available official or unofficial sources. Neither the company nor any of its representatives have independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purpose only, and in case of any discrepancy, management statements in their original language will prevail. With that, I will now turn the call over to our Chairman, CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Thank you, Siting. Hello everyone. Thank you for joining Beike's second quarter and interim 2024 earnings conference call. In the second quarter, we continued to outpace the broader market. Since the beginning of the year, we have made strategic efforts to boost growth, foster our ecosystem, and transform our business into a technology-powered, one-stop residential services platform model. These efforts have paid off, and we achieved high quality performance across the board. A set of supportive policies both generated the overall market recovery in the second quarter. Notably, the existing home market, especially in fourth tier cities, rebounded sharply in May and June. Our home transaction business performed well within this favorable market environment with both our existing and new home transactions surpassing the broader market performance. More specifically, in May, existing home transaction on Beike's platform saw positive GTV growth compared to the previous years. And in June, growth surged by nearly 70% year-over-year. According to the estimate from data disclosed by the housing bureaus and housing associations of the four first tier cities, the total number of online, restricted transactions for existing homes grew by around 16% year-over-year in the second quarter of 2024. For reference, while online restorative transactions on Beike's platform grew by 40% year-over-year, for new home transactions the contraction rate on Beike's platform narrowed to 25% year-over-year in May from contract transaction value. And in June, GTV turned positive with the contract transaction value growing over 12% year-over-year. For second quarter, GTV or CRICs top 100 real estate companies declined by 35% year-over-year, while GTV contraction of Beike's platform narrowed to 20%. The improvements in the second quarter this year were partly due to the warning efforts of the high base we saw in the fourth quarter. More importantly, our scientific management and proactive…

Thank you, Stanley, and thank you everyone for joining us. Before we dive into our Q2 performance, I would like to briefly touch on some updates in the housing market. In the first half of the year, the central and the local authorities implemented easing policy intensively. This included further relaxing purchase restrictions, lowering down payment ratios and cutting mortgage rates. The real estate financing condition mechanism was established, and put into practice at an accelerated pace. The central bank launched the relending tools to support local SOEs in acquiring existing commercial homes, facilitating the nationwide implementation of old for new housing through various programs. In the first half of the year, the market showed a gradual recovery. Although market performance was muted due to the seasonality at the beginning of the year, all these positive policies contributed to the market's gradual improvements, with the high base effect from early last year records receding. In Q2, the in-home market performed well, especially in first tier and some key second tier cities, where market activity notably improved. The new home market remains gradually subdued even as its year-over-year decline narrowed month-over-month in Q2, with backdrop of an incremental rebound in market sentiment. We continue to uphold a market neutral view and focus on improving our performance by continuously deepening operations, further empowering service providers and store owners and promoting rapid growth of our new initiatives. The combination of these endeavors led to our excellent financial and operating results in this Q2. For Q2, the total GTV reached RMB839 billion, up 7.5% year-over-year. Net revenue was RMB23.4 billion, representing a year-over-year increase of 19.9%. Gross margin improved by 0.5 percentage points year-over-year to 27.9%. GAAP net income reached RMB1.9 billion, rising by 46.2% year-over-year. Non-GAAP net income grew by 13.9% year-over-year to…

[Operator Instructions] Your first question comes from Harry Chen with Citigroup. Please go ahead.

[Foreign Language] Congratulations company for quite a solid second quarter result, and also thanks management for taking my question. So with lots of supportive property policies rolled out since second quarter, especially after May 17th, what changes have occurred in the real estate market? Do new home and existing home market show divergent performance? How sustainable are transactions after these policies? And what is your view on transaction outlook in the second half of this year? Thank you.

Thank you, Harry. Let me answer your question. In Q2, the housing market showed steady month-by-month improvement with an actual boost to in-home transaction volume since the new policy introduced on May 17th. Notably, the in-home prices also saw a narrow decline in June. Although the new home market has yet to show any non-seasonal improvement, the year-over-year sales decline in Q2 narrowed month-by-month. The significant market downturn in Q1 due to the higher base and seasonal factor has gradually faded. Market transactions continue to shift from new homes to existing homes. The proportion of national GTV from existing home transaction has increased from around 40% of total GTV last year to approximately 44% in the first half of this year. Now let me further elaborate. Further policy relaxation continue in the first half of the year, particularly after inventory reduction policy cycle began. Particularly, the May 17th policy package focused on reducing the housing inventory, reviving existing homes under relaxing mortgage conditions with high tier cities continuously relaxing purchase restrictions. Regarding the existing home market, transaction volume in Q2 show notable recovery. Volumes on bigger platform in May and June increased month-by-month, outperforming month by month, outperforming the typical seasonal trend. The number of transactions in June reached the highest level of the same period since 2022 -- since 2020. This rebound was especially strong in the first-tier cities, stimulated by fewer purchase restrictions under relaxed mortgage conditions since the end of May. In June, transaction volumes in Tier 1 cities on bigger platform were 46% higher than in April, and increased 132% year-over-year, especially in Shanghai. Shanghai, registered an increase of nearly 80% from April to June due to the extensive policy easing, reaching the highest peak we have seen since the early 2021. And for Tier 2…

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

[Foreign Language] Thanks management for taking my question. My question is about our new home business. Can management comment about why our new home is doing better than the industry? Can we also comment about the output of new home and the trend about the monetization rate? Thank you.

Thank you, Thomas. In the first half of the year, our new home business continued to significantly outperform the industry. Supported by our robust operational and execution capability, our housing transaction business continued to achieve our target of outperforming the market and consistently generate [alpha] (ph). In Q2, our new home GTV reached RMB235.3 billion, down 20% year-over-year, but was up 55% quarter-over-quarter. GTV of CRIC's Top 100 real estate developers grew by 35% year-over-year in Q2. In June, our new home's contract transaction volume increased by 12% year-over-year, compared with the industry's 22% drop, notably outpacing the market. In addition, our revenue in Q2 surpassed our GTV. This indicates, first, that we have not compromised our monetization capability to gain market share. On the contrary, our stable monetization capabilities have been validated. Second, in a buyer's market, by helping downstream agents with special incentives for new home sales can facilitate more efficiency sell-through in the current market. The certainty of our business momentum stems primarily from our channel service coverage function and enhanced sell-through capabilities. In terms of the cooperation with the real estate companies, the relationship between brokerage channels and developers are setting the stage for a new and a new mutual beneficial model. Historically, brokerage channels and developers had a more competitive relationship. However, as the new home market becomes a buyer's market, selling home has been more challenging and the customer needs have changed substantially. The role of the sales channel in the industry transitioned from the simply mixed deal to providing deep insights into the customer needs and collaborating with developers to address new buyers' pain points. Riding this trend, we have been advancing our reach and evaluating the depth and the breadth of our partnership with top-tier developers. This year, we further expanded the…

Thank you. Your next question comes from Eddy Wang with Morgan Stanley. Please go ahead.

[Foreign Language]. Thank you for taking my question. My question is regarding the growth strategy of our home transaction service, what's the emphasis on Lianjia and -- Lianjia respectively? And how's the feedback from the store level so far? And what's the innovatives in the cities where our business are quite stable? Thank you.

Thank you, Eddy. This year, our core strategy for home construction business is promoting growth and building a harmonious ecosystem. In the first half of this year, we achieved notable results in scaling connected stores and exploring innovative models. In terms of scaling our agent and store network, by end of Q2, the total number of active non-Lianjia stores on our platform increased to 38,900 and the number of active Lianjia agent rose to 308,000, up by 6% and 2.8%, respectively, compared to the end of 2023. In the first half of this year, we added 48 new major brands. During this period, over 6,500 new stores were signed with our platform, averaging around 1,200 new signing per month, with a six-month retention rate of 93% for these new stores. For the newly connected stores, we provided fee discounts, installment plans, and other support for those brands. We also added their operations with experienced store owners and tailor-made integration plans. In terms of efficiency, three months after signing up, the productivity of agents in the new stores connected since last September reached over 80% of the productivity of the agent in the in-store on platform. Additionally, we help stores in some key cities enhance efficiency through refined operations, such as property inventory checks, quality home listing focusing, verification and reviewing. This was also aided by technology driven tools, including our AI housing matching and smart home listing mechanism assistance. We're also seeing good returns from the investment in-stores function. The new stores singed in Q4 for last year have achieved a positive ROI as of June this year. Four new stores opened in Q1 this year. Their net revenue contribution in the first half of the year has already covered the estimated expenses. The continued scaling of our regional store…

Thank you. Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Great. Thank you, management, for taking my question, and congrats on the very robust result. And my question is on your non-home transaction business, including the home renovation and furnishing as well as the home rental business. And I'm pretty glad to see that the contribution margin of the both businesses expanded year-on-year in the second quarter. So may I ask on home renovation, what management key operating focus is for this year? And what is the progress so far? And on the home rental business, could you share some color on how we should look at the unit economics of this business? And what is the key drivers behind the profitability improvement? Thank you.

Thank you, Timothy. Let me answer your first question regarding the home renovation. Our home renovation business reached over RMB10 billion of the revenue last year with the standout performance in leading cities that validated our business capability and model. This year, we are shifting our focus on building important infrastructure and capabilities. This includes upgrading our digitalized fundamental capability and the reinvesting process based on our Home SaaS system as well as optimizing our construction delivery and customize the furniture delivery capabilities. Mid-office digitalization is the archery of our entire home renovation business. It connects service providers and enable all home renovation activity to run smoothly under our continually refined and standardized process. Implementing mid-office digitalization through our Home SaaS system, we have iterated this system to Version 2.5 this year and are promoting it nationwide. So far it has been successfully adopted in Beijing, Shanghai, and Chengdu. Home SaaS covers five major sectors, customer's cell systems, central control system, construction delivery system, and supply chain system. Compared to previous version, Home SaaS 2.5 mainly upgrades two modules, the BIM shared service center mid-office module and the integrated material fulfillment module. Among them, the BIM shared service center mid-office module can automatically generate price codes for the renovation based on the standardized construction drawing from B, thereby improving designer efficiency and reducing error rates. All design and construction data will be stored in the middle of the system for future iteration. In terms of the material fulfillment integration, we have promoted the standardization of the product data and achieved online unified scheduling for various main material categories to increase the certainty of material delivery. Regarding the improving our delivery capability, we shortened the delivery timelines and enacted the proactive maintenance of the construction delivery. This year, with the high…

Thank you. 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 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 again next quarter. Thank you and goodbye.