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Ke Holdings (BEKE US) Summary

Core Content

Ke Holdings (BEKE US) is a leading player in the Chinese real estate brokerage sector, with strong performance and growth expectations for the upcoming quarters. The document provides an analysis of its financial results, management guidance, and investment outlook, highlighting its potential for continued sales growth and profitability improvement.

Main Points

• 2Q23E Sales Expectations: BEKE's sales growth is expected to continue improving in 2Q23E and beyond, driven by a low base effect, market recovery, and a strong existing home transaction (EHT) market. The company's sales guidance for 1Q23E is higher than market expectations, and the sales momentum is expected to persist due to stabilized property prices and low mortgage rates.

• Sales Growth Drivers: The existing home transaction (EHT) market is growing at a 40% YoY rate, with management expecting a 60% increase in EHT GTV and a 20% increase in new home GTV for 1Q23E. The new home market is expected to remain flat in 2023E, while the EHT market is expected to grow by 15% YoY.

• Profitability Improvements: BEKE's adjusted net profit for 2023E is expected to reach RMB6.2bn, which is 17% higher than the consensus. For 2024E, the adjusted net profit is forecasted to be RMB7.7bn, 13% higher than the consensus. The company's non-GAAP net profit margin is expected to improve, reflecting better cost control and monetization.

• ACN Network Impact: The ACN (Agent Connect Network) is expected to amplify BEKE's performance, particularly in the existing home market. Connected stores are likely to benefit more due to their lower efficiency, leading to a 30% YoY increase in service fees from the ACN network to RMB4.5bn, contributing 20% to the bottom line.

• Shengdu Performance: Shengdu is expected to narrow its loss in 2023E and may even achieve breakeven in some months of 2024E. The company is continuing its investment in Shengdu, which is seen as having significant growth potential.

• Target Price and Recommendation: The investment recommendation is Buy, with a target price of US$24.30 per ADS, up from the previous target of US$23.30. The target price is equivalent to a 32x and 26x 2023/2024E PE ratio (non-GAAP), suggesting a positive outlook on future earnings.

• Financial Performance: In 4Q22, BEKE delivered RMB1.55bn in adjusted net profit, significantly beating expectations. The NPM (Net Profit Margin) increased to 9.2%, driven by GTV recovery and improved commission rates in the new home market.

• Key Financial Metrics:

  • Existing Home Transaction (EHT): RMB360bn in 4Q22 (+1.5% YoY), expected to grow further in 2023E.
  • New Home Transaction: RMB263.5bn in 4Q22 (-26% YoY), expected to remain flat in 2023E.
  • Service Fees from ACN: Increased by 25.2% YoY to RMB0.9bn.
  • Cash Position: BEKE has RMB83.5bn in cash, which is sufficient to cover any financial crisis, and there is no cash deposit in Credit Swiss or SVB.

• Earnings and Profitability:

  • Revenue is expected to grow by 21.1% YoY in 2023E and 10.1% YoY in 2024E.
  • Adjusted net profit is projected to increase from RMB5,316.1mn to RMB6.2bn in 2023E and further to RMB7.7bn in 2024E.
  • ROE (Return on Equity) is expected to improve from -2% in 2022A to 4.2% in 2023E and 5.7% in 2024E.

• Valuation Metrics:

  • P/E ratio (non-GAAP) is projected to be 32x for 2023E and 26x for 2024E.
  • The company's market capitalization is US$20,821.5mn, with a 12-month price performance showing a mix of positive and negative returns across different timeframes.

• Market Conditions and Catalysts:

  • The market is expected to continue to be strong, with a solid foundation for BEKE's performance.
  • Policy relaxation is seen as a positive catalyst for future growth.
  • The company is expected to benefit from the recovery in the existing home market and the amplification effect of its ACN network.

Key Information

• Management Guidance:

  • EHT GTV is expected to grow by 15% YoY in 2023E.
  • New home transaction is expected to remain flat in 2023E.
  • BEKE is expected to record a 60% YoY increase in EHT GTV and a 20% YoY increase in new home GTV in 1Q23E.
  • There will be a reversal of write-offs totaling RMB2bn in 2023E due to market improvement.

• Financial Highlights:

  • BEKE's 4Q22 adjusted net profit was RMB1.55bn, significantly exceeding expectations.
  • The company's existing home transaction revenue is expected to grow by 29% YoY in 2023E, while new home transaction revenue is expected to grow by 4% YoY.
  • The company has a strong cash position and is not in financial distress.

• Investment Outlook:

  • The target price of US$24.30 is based on a revised revenue and profit forecast.
  • The company is expected to outperform the market in the coming year, with the potential for a return of over 15%.

• Shareholding Structure:

  • Propitious Global holds 23.3% of the shares.
  • Tencent Mobility holds 10.0% of the shares.

• Risk Disclaimer:

  • The report is for informational purposes only and not investment advice.
  • Investors are advised to consult a professional financial advisor before making any investment decisions.

Summary Table

Conclusion

Ke Holdings (BEKE US) is expected to continue its strong performance in the coming quarters, driven by a robust existing home market, improved monetization rates, and the amplification effect of its ACN network. The company's financial position is solid, with a strong cash reserve and a clear path to profitability. The investment recommendation is Buy, with a target price of US$24.30 per ADS, reflecting confidence in its future earnings potential.