On Thursday, Citi reaffirmed its Buy rating on KE Holdings (NYSE:BEKE) stock, with a steady price target of $21.10. The company's first-quarter revenue and profit exceeded expectations due to performance in the existing home segment and effective cost management. However, the new home Gross Transaction Value (GTV) and margin were weak, despite achieving a record-high take rate.
KE Holdings reported a first-quarter adjusted profit of Rmb1.39 billion, a 61% year-over-year decline but 38/40% higher than the consensus and Citi's own estimates of Rmb1 billion.
Revenue fell by 19% both quarter-over-quarter and year-over-year to Rmb16.4 billion, slightly surpassing Citi's and market predictions by 3% and 1%, respectively.
The net margin remained stable at 8.5%, consistent with the fourth quarter of 2023 and down from 17.5% in the first quarter of 2023. This was attributed to a steady gross margin of 25.2% and lower-than-expected non-GAAP operating expenses of Rmb3.2 billion.
The existing home segment saw a less severe decline in GTV than anticipated, with a year-over-year drop of 32% compared to Citi's and consensus estimates of a 37% decrease. The contribution margin in this segment held steady at 44.5%.
The new home segment faced a tougher quarter, with a 45% year-over-year reduction in GTV, which was more pronounced than the 49% decrease seen among the top-100 developers.
The take rate for new homes reached a new high of 3.24%, but the contribution margin decreased to 22.3%. The net take rate also declined to 0.72%.
Additionally, the renovation and furnishing business experienced a 26% year-over-year increase in contract value to Rmb3.4 billion. However, revenue growth was mixed, showing a 71% year-over-year increase but a 34% quarter-over-quarter decline to Rmb2.4 billion, attributed to completion delays during the Chinese New Year period.
InvestingPro Insights
As Citi maintains a bullish stance on KE Holdings, real-time data from InvestingPro reinforces some of the positive sentiments surrounding the company. With a market capitalization of $22.96 billion and a P/E ratio of 27.26, KE Holdings is trading at a valuation that is intriguing to investors, especially considering its strong revenue growth of 28.2% over the last twelve months as of Q1 2023. This growth momentum is also reflected in the company's robust price total return of 38.65% over the past month and 36.39% over the past three months.
Two InvestingPro Tips that stand out for KE Holdings are the company's aggressive share buyback strategy and its strong liquidity position, with liquid assets surpassing short-term obligations. These factors suggest a confident management team and a solid financial footing, which could be reassuring for investors considering the stock. Additionally, analysts predict that the company will be profitable this year, a sentiment supported by the company's profitable performance over the last twelve months.
For readers looking to delve deeper into KE Holdings' financial health and future prospects, InvestingPro offers additional insights and analytics. As of now, there are 11 more InvestingPro Tips available for KE Holdings, which can be accessed via InvestingPro's platform. Interested investors can use the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a more comprehensive understanding of the company's investment potential.
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