FAST NEWS: Cost Reductions Help KE Holdings Return to Profits

The latest: Residential real estate broker KE Holdings Inc. (BEKE.US; 2423.HK) reported on Wednesday its revenue fell 2.8% year-on-year in the third quarter to 17.6 billion yuan ($2.45 billion), as it returned to the black with a net profit of $716 million yuan versus a loss a year earlier.

Looking up: The company’s cost of revenues dropped 16.3% to 12.8 billion yuan during the period, mainly due to 21.9% and 23.3% reductions in its number of agents and stores, respectively, resulting in a significant reduction in commissions, salaries and store costs.

Take Note: The resurgence of Covid-19 in certain parts of China hurt the real estate market in the third quarter, resulting in a continued sluggish market for new construction and transactions. As a result, the company’s gross transaction value decreased by 11.3% to 737.1 billion yuan during the period, affecting overall revenue.

Digging Deeper: China’s curbs on housing speculation, coupled with its economic slowdown, have caused debt-ridden developers to teeter on the brink of bankruptcy and many housing projects to go unfinished, depressing activity in China’s overbuilt real estate market. KE Holdings, which operates a network of well-known green Lianjia brokerage shops, has also suffered a significant impact on its revenue. Responding to its predicament, Chairman and CEO Peng Yongdong unveiled a “one body, two wings” strategy last December, whereby the company would enter the home renovation and home rental services businesses to completement its mainstay as a residential property broker. The new strategy has achieved initial success, with the company’s home renovation and furnishing revenue up 20 times in the first nine months of this year to 2.95 billion yuan, offsetting revenue losses for its home transaction services.

Market Reaction: KE Holdings’ shares surged 12% to $16.92 on Wednesday in New York after the results were released. Its Hong Kong shares initially jumped 13% on Thursday, and closed up 9.5% at HK$43.60 by the midday break. The Hong Kong shares are now 45.3% higher than their opening price of HK$30 on the day they were listed there “by way of introduction” in May this year.

Translation by Jony Ho

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