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Text/Dou Wenxue

Editor/Midnight

In 2024, the real estate market continued to adjust, and the real estate transaction service platform Beike was also affected to some extent by the overall environment.

Recently, Shell released its 2024 interim performance announcement. Compared with last year's counter-trend growth, Shell's several key financial data recorded a decline by the middle of 2024.

During the reporting period, Beike achieved a total operating revenue of 39.75 billion yuan, a year-on-year decrease of 0.04%; net profit attributable to shareholders of the parent was 2.324 billion yuan, a year-on-year decrease of 42.70%; and gross profit was 10.64 billion yuan, a year-on-year decrease of 9.01%.

However, in the single quarter's performance, we can still see that Shell is stabilizing.

According to its unaudited financial data for the second quarter, Beike achieved net revenue of 23.4 billion yuan, a year-on-year increase of 19.9%; net profit was 1.9 billion yuan, a year-on-year increase of 46.2%; and adjusted net profit reached 2.69 billion yuan, a year-on-year increase of 13.9%.

Shell's second quarter financial data, source: Shell's official WeChat public account

According to the month-on-month growth data, Ke Ke's net income in the second quarter increased by 43.67% compared with the first quarter, and its net profit attributable to shareholders increased by more than three times.

Beike's performance has always been a microcosm of the real estate industry. Its performance is significantly better than that in the first quarter, which also means that the relaxation of real estate policies in May has played a role in the housing market. Beike has also undergone a series of adjustments to reverse its slightly sluggish performance in the first quarter.

On the other hand, the characteristic of "houses are not easy to sell" is also clearly written in the performance report of Shell. In mid-2024, Shell achieved a total transaction volume of 1468.9 billion yuan, a year-on-year decrease of 16.2%. Among them, new house transactions plummeted, while second-hand house transactions fell less.

Although the main business is affected by the environment and has sluggish development, the "side business" is thriving. Beike is also known as "a model of alpha outperforming beta."

Since 2021, Beike has regarded leasing and decoration business as the "two wings" of the company, and combined with "integrated" real estate brokerage, it has become the company's new growth curve. In 2023, Beike upgraded the "two wings" to "three wings" and opened up a third business line - residential development.

Judging from the financial report, Shell's first two wings have achieved good results. Its house rental services and home improvement and home furnishing businesses have achieved varying degrees of growth.

Its newly developed "third wing" also successfully opened orders not long ago. On July 30, Shell's Beihaojia won two residential land plots in Xi'an, successfully acquiring land for the first time.

Regarding future development, Beike has released new signals to the secondary market.

Along with its earnings report, it released an expanded and extended share repurchase plan, increasing the share repurchase authorization from US$2 billion to US$3 billion and extending the repurchase plan period to August 31, 2025.

After this series of combined punches, how will the capital market view Beike?

Shell is still stable, but challenges remain

In 2023, when the real estate market became increasingly sluggish, a company emerged that grew against the trend - Beike.

As a leading real estate transaction service platform, Beike's performance has always been a barometer of the real estate market. For a time, many people judged that the real estate market was "not that bad" or "about to pick up" based on Beike's performance recovery.

However, in the first quarter of this year, the real estate market fell back again and the decline in real estate sales indicators widened.

According to data released by the State Council Information Office in April this year, in the first quarter of this year, real estate development investment fell by 9.5%. The sales area of ​​newly built commercial housing nationwide was 226.68 million square meters, a year-on-year decrease of 19.4%; the sales volume of newly built commercial housing was 2135.5 billion yuan, a decrease of 27.6%.

Shell's performance has also been affected to a certain extent. The financial report shows that the company achieved revenue of 16.4 billion yuan in the first quarter of 2024, a year-on-year decrease of 19.24%; net profit attributable to shareholders was 432 million yuan, a year-on-year decrease of 84.28%; adjusted net profit was 1.392 billion yuan, a year-on-year decrease of 61%.

But as Sheng Laiyun, deputy director of the National Bureau of Statistics, said at a press conference, the decline in real estate sales indicators in the first quarter widened, and due to the comparison base last year, the absolute level is not low.

The same is true for Beike's performance. It seems to have declined significantly compared with the previous year, but in fact it shows a similar trend of change with fluctuations in the market environment.

Therefore, although the year-on-year data of several key financial items of Beike also declined in the second quarter, in order to know whether Beike has made "progress", we must also look at the month-on-month indicators.

In the second quarter of this year, Beike achieved a net income of 23.4 billion yuan, a year-on-year increase of 19.9% ​​and a month-on-month increase of 42.68%; the net profit attributable to the parent was 1.90 billion yuan, a year-on-year increase of 46.2% and a month-on-month increase of 338.63%; the adjusted net profit was 2.69 billion yuan, a year-on-year increase of 13.9% and a month-on-month increase of 93.25%.

In terms of profitability, both the gross profit margin and net profit margin of Shell increased compared with the first quarter. The gross profit margin was 26.77%, an increase of 1.6 percentage points from 25.17% in the first quarter; the net profit margin was 5.87%, an increase of 3.23 percentage points from 2.64% in the first quarter.

During the reporting period, Shell's total transaction volume data rebounded from the first quarter to 839 billion yuan, an increase of 33.20% from 629.9 billion yuan in the first quarter.

According to Lianjie Insight, the housing market recovered in the second quarter thanks to a series of policy support.

According to China Real Estate Network, in May this year, domestic real estate policies continued to relax. At the central level, favorable policies such as lowering the minimum down payment ratio for the first and second homes and the interest rate of personal housing provident fund loans were introduced; at the local level, 98 real estate regulation policies were introduced in cooperation with the central government.

Despite policy support and better performance than the previous period, it is undeniable that houses will still be difficult to sell in the first half of 2024. Shell's stores and manpower are increasing, but the total transaction volume is decreasing.

The financial report shows that Beike's number of stores has reached nearly 46,000, a year-on-year increase of 6.9%. The number of active stores has increased by 8.1% to 44,400 from the same period last year; the number of brokers has increased by 5.2% year-on-year to about 458,700, and the number of active brokers is about 411,500.

However, as of the end of June, Beike achieved a total transaction volume of 1.4689 trillion yuan, a year-on-year decline of 16.2%.

Among them, the transaction volume of new homes fell sharply to 387.1 billion yuan, a year-on-year decline of 32.4%. Among them, external brokers and Lianjia brokers facilitated transaction volumes of 313.8 billion yuan and 73.3 billion yuan, respectively, a year-on-year decline of 33% and 29.9%, respectively.

The situation of second-hand houses is better than that of new houses.

In the first half of 2024, the total transaction volume of Shell's existing housing transactions was 1023.8 billion yuan, a year-on-year decrease of 8.7%. Among them, the transaction volume of existing housing facilitated by Lianjia stores decreased by 11.9% year-on-year to 412.4 billion yuan, and the transaction volume facilitated by Beilian brokers on the Shell platform decreased by 6.3% year-on-year to 611.5 billion yuan.

According to Lianxun Insight, although the activity of second-hand market transactions has increased significantly recently, the price of second-hand houses has not dropped significantly. This means that the market demand in high-tier cities is sufficient and the effectiveness of the policy has been verified to a certain extent.

Overall, despite the numerous challenges in the overall environment, the fundamentals of Beike's real estate brokerage business remain relatively solid.

Seeking diversified transformation,

Has Beike found a new growth curve?

As housing prices continue to fall, Beike is no longer concerned about the continued pressure on its real estate brokerage business and is trying to seek diversified transformation.

Since 2021, Beike has proposed a "one body and two wings" strategy, taking real estate brokerage as the main line, and the rental business Huiju and the home furnishing business Beike Decoration as the new business development curve.

In 2023, Beike expanded its "two wings" to "three wings" and opened up a third business line - Beihaojia residential development, attempting to gradually transform from a traditional real estate brokerage service platform to a comprehensive residential service provider.

In the first half of this year, Shell's efforts in transformation were first reflected in its investment in "one body and three wings".

As mentioned above, Beike not only opened more stores, but also hired more employees.

It also revealed in the financial report that the company is promoting the large-store model and developing different types of store formats, such as increasing community coverage through community convenience service stations, or integrating home improvement scenes into stores to become a one-stop residential service entrance, etc.

These will undoubtedly require more costs to maintain.

But in fact, due to the reduction in the scale of transaction business, the costs of Shell stores, commissions of external brokers and salary costs of internal employees have been reduced.

In the first half of the year, Shell's store costs decreased from 1.415 billion yuan in the same period of 2023 to 1.365 billion yuan, and the commission costs paid to external brokers decreased from 11.4 billion yuan in the same period last year to 8.9 billion yuan; internal commissions and salaries decreased from 9.4 billion yuan in the same period of 2023 to 8.1 billion yuan.

Shell has invested more money in the first two wings of the "three wings".

The financial report shows that the cost of home furnishings at Beike increased from 2.8 billion yuan in the same period of 2023 to 4.4 billion yuan, a year-on-year increase of 57.5%; rental services increased from 2.2 billion yuan in the same period of 2023 to 5.5 billion yuan, a year-on-year increase of 1.5 times.

Shell's 2024 mid-term operating cost data, source: Shell's official website

Correspondingly, Shell’s investment has also paid off.

Home furnishings and decoration have become the fastest-growing sector of Beike in recent years. In the second quarter, the contract value of this business was 4.2 billion yuan, a year-on-year increase of 22.3%; the new retail contract value including customized furniture and soft furnishings was 1.22 billion yuan; net income was 4 billion yuan, a year-on-year increase of 53.9%; the business contribution profit margin reached 31.3%.

As of mid-2024, the total transaction volume of this segment was RMB 7.6 billion, an increase of 24.0% over the same period in 2023, and revenue increased by 59.9% year-on-year, accounting for 16.23% of total revenue.

The net income of another house rental service increased from 2.1 billion yuan in the same period last year to 5.8 billion yuan this year, an increase of 176.7%; the contribution profit margin increased from 5.5% to 5.8% month-on-month.

The financial report stated that the main reason for the growth of this business was the increase in the number of managed properties under the Xinxinzu model. Data showed that Xinxinzu managed more than 300,000 units at the end of the second quarter, compared with more than 240,000 units in the previous quarter and more than 120,000 units in the same period last year. The number of centralized long-term rental apartments under management was more than 14,000 units, compared with more than 7,000 units in the same period last year.

With the steady improvement of the "front two wings", Beike has begun to move beyond its identity as a real estate transaction service platform and become a "developer".

At the end of July this year, Beihaojia, a residential development service platform under Beike, successfully won two commercial and residential land plots totaling 14.475 acres in Weiyang District, Xi'an after two failures, with a total transaction price of 130 million yuan.

This business is not divorced from the platform advantage of Beike. It is reported that Beike Home is not positioned as a traditional real estate developer, but as a data-driven residential development service platform, mainly providing comprehensive solutions in the "1+2" ​​model for owners, developers and other partners. "1" refers to product solutions, and "2" refers to a variety of financial services and integrated online and offline marketing services.

The "one body" has stabilized, the "three wings" have improved, and Shell's confidence in itself has also increased.

Share repurchase program increased to $3 billion,

Can it give shareholders more confidence?

Along with the release of Shell’s semi-annual report, there was also an announcement to expand and extend the share repurchase plan.

The announcement showed that with the approval of the board of directors, the repurchase plan was increased from US$2 billion to US$3 billion, and the period was extended from the end of August this year to the end of August next year.

In fact, the extended share repurchase plan began in September 2022. As of August 12, Beike had spent approximately US$1.39 billion on share repurchases, equivalent to nearly 10 billion yuan. The number of repurchased shares accounted for approximately 7.5% of the company's total issued share capital before the repurchase plan was launched.

Among them, from the beginning of this year to August 12, Beike repurchased a total of US$480 million in shares, accounting for 2.7% of the total share capital at the end of last year.

Shell shares repurchase plan, source: Shell Zhaofang official WeChat public account

Shell's repurchase was quite sincere. It did not convert the shares into treasury shares and then distribute them to executives as equity incentives, but directly cancelled them. For example, in 2023, all of the $719 million worth of shares repurchased by Shell have been cancelled.

According to Market Capitalization News, from the beginning of this year to August 13, Beike's repurchased amount was HK$3.83 billion, ranking 8th in the Hong Kong stock market.

From the perspective of cash flow, Shell's book funds can support its confidence. In the first half of this year, the company's net operating cash flow was RMB 3.858 billion, and its debt-to-asset ratio remained at 42.3%. As of June 30, 2024, Shell's cash, cash equivalents, restricted funds and short-term investments totaled RMB 59.7 billion.

In the second quarter earnings conference call, Beike Executive Director and CFO Xu Tao said, "With a solid cash reserve, we will continue to increase shareholder returns and, through active stock repurchases, further enhance capital allocation, improve capital operating efficiency, and share the dividends of development with investors."

The repurchase adjustment plan of Shell has taken effect. On the second day after expanding and extending the share repurchase plan, Shell's Hong Kong stocks opened high and continued to rise. As of the close of the day, the share price was HK$38.6 per share, a huge increase of 7.67%.

Shell Hong Kong stock price trend on August 13, source: Choice

However, this rise did not last long. On August 14, Beike's Hong Kong stocks closed down 2.20%, and continued to fluctuate around HK$38 per share in the following days.

As of the close of August 21, Beike's share price was HK$38.15 per share, down 2.43%.

Shell's performance is a microcosm of the current situation of the real estate industry. Similarly, the market's confidence in Shell is also a microcosm of its confidence in the real estate industry.

It is generally believed in the industry that the real estate industry will continue to undergo a long period of adjustment. In this environment, Beike can only try its best to maintain stable "output", respond quickly to market changes, and seek second-curve growth.

For Beike, the "one body and three wings" strategy has already shown some results. The next step is to let several businesses move forward in parallel, enhance its ability to cross cycles, and make the capital market have more confidence in it.