Shell (Minutes): If the property market worsens in Q3, there may be more supportive policies.

Below is$KE(BEKE.US) the earnings call minutes for FY25 Q1. For the earnings review, please refer to《As Long as You Survive the Roller Coaster of the Property Market, the Leading Shell is Fine》

1. Key Financial Information Review

2. Detailed Content of the Earnings Call

2.1 Key Information from Management

1. Strategic Focus Areas

Home Renovation Business: Improved product design and project management capabilities, with the average monthly orders per project manager increasing by 156% year-over-year.

Leasing Services: Managed over 500,000 rental properties, improving default management and renewal rates.

2. Application of AI Technology

1) Launched an AI-driven property search system in 2 cities, accessible to 40% of homepage traffic.

2) Agent service tools enabled over 200,000 agents to manage more than 2.5 million clients, improving efficiency metrics.

3) AI property maintenance system was adopted by 110,000 agents, serving 400,000 homeowners.

4) Tested a post-lease support AI system in 30 cities, achieving a 125% processing rate for tenant requests.

2.2 Q&A

Q: Considering the latest macroeconomic dynamics and the impact of U.S. tariffs, what is the outlook for the property market this quarter and beyond?

A: In Q1, the secondary property market showed strong recovery post-Lunar New Year, while the primary market remained stable. According to Shell Research Institute data, national secondary property transactions grew 16% year-over-year in Q1, mainly due to the cumulative effect of policies that significantly lowered purchase thresholds and costs, stimulating demand. Rising transaction volumes balanced short-term supply and demand, narrowing the year-over-year decline in prices and attracting cautious buyers back to the market.

In March, tier-1 cities like Beijing and Shanghai, as well as tier-2 cities with stable population inflows and housing demand like Hangzhou and Chengdu, saw secondary property prices stabilize or even rise slightly month-over-month.

The primary market was also stable in Q1. National Bureau of Statistics data showed primary property sales declined slightly by 0.4% year-over-year in Q1, while total sales for 200 developers fell 7%, though sales area during the Lunar New Year period rose over 15% year-over-year. The market followed seasonal trends, with secondary property transactions peaking in early March and gradually declining in April, with prices down 1.3% month-over-month in April.

From a supply-demand perspective, the total number of listings on Shell’s platform rose in Q1, aligning with seasonal trends of year-end inventory clearance and early-year inventory buildup. The recovery of secondary market functions and the lifting of sales restrictions also released more listings, improving supply quality.

In April, the average viewing-to-transaction ratio was 1.8, within the historically high range of 1.6–1.9, indicating strong buyer interest and latent demand. However, the speed of viewings converting to transactions slowed, mainly due to short-term uncertainties affecting expectations, such as geopolitical tensions softening price expectations and making buyers more hesitant. The future market outlook depends on two key factors: the impact of international trade friction on the property market and the strength and timing of domestic countermeasures.

Under a neutral scenario, Q2 is expected to see typical seasonal slowdown, but secondary property transactions could still grow slightly year-over-year, albeit at a slower pace than Q1. If market pressure intensifies in Q3, indicators like prices, transactions, and development investment may weaken, potentially prompting more supportive policies in H2 to improve supply-demand dynamics and stabilize the market.

The company is closely monitoring the impact of global trade changes on the property market. Currently, the total number of new listings on Shell’s platform remains stable, with no signs of panic selling. Viewings for both secondary and primary properties continue to rise significantly year-over-year. Cities with high trade dependence have shown weaker viewing performance year-over-year and month-over-month since tariffs were imposed, indicating that while trade friction has caused short-term disruptions in some cities, there is no clear divergence trend overall, and owner sentiment remains stable. The recent easing of U.S.-China trade tensions has helped stabilize business and consumer expectations in the short term.

In the medium to long term, the company remains cautiously optimistic, expecting continued communication between the U.S. and China based on current positive developments. The sustained implementation of domestic supportive policies is also expected to further boost client confidence, mitigate the impact of trade risks on the property market, consolidate the initial stability of the secondary market, and alleviate pressure on the primary market.

Q: Could management elaborate on this year’s expansion plans for real estate agents and brokerage stores, as well as how to continuously improve the efficiency of existing and newly onboarded agents and stores on the platform?

A: This year, we will continue to drive healthy growth in the brokerage store network to support property transaction services, while placing greater emphasis on cost efficiency for store functions, with the goal of improving platform store and agent efficiency and income. Several major brands joined the platform in Q1, reflecting the platform’s core value in the two-sided market.

In Q1, thanks to a stable market environment, platform efficiency improved, with the average number of transactions per agent increasing significantly, helping offset the decline in average property prices. The platform’s efficiency-focused mechanisms began to show results, with the proportion of high-performance stores rising from 16.7% at the end of 2024 to 18.4% in Q1. On average, these stores are about 2.5 times more productive than other stores on the platform in their respective cities.

To improve efficiency, the company refined internal management, using digital tools like online store owner workshops and AR property testing assistance, as well as mechanisms like point-based incentive programs and regional co-governance committees. New store retention rates remained strong, with revenue churn dropping to 2.9% in Q1, down 6% month-over-month and 38% year-over-year. The six-month retention rate for stores onboarded in H1 2024 was 94%. The number of stores is expected to remain largely stable, with moderate growth in active store scale in certain key regions.

This year and beyond, improving network efficiency is a core goal. We will provide more targeted support to store owners, cultivate more high-performance stores through point-based incentive systems, and upgrade the overall structure of the store network. In the long run, the large-store model is a key strategy to boost business activity. In the future, the platform will have more high-performance large stores with over 10 agents, which will attract higher-quality tenants, improve efficiency, and enhance employee retention.

The platform’s various residential services will provide agents with diversified additional income opportunities, and we believe AI will bring transformative productivity improvements to the industry. We have developed multiple AI applications to support service providers and will continue to accelerate development. Amid market volatility this year, the goal is to increase the average number of transactions per onboarded agent to maintain stable commission income. Over the next 2–3 years, we plan to increase the proportion of large, high-quality stores, which will have more stable and efficient high-performance agents. Store productivity is expected to reach 2–3 times the current average, with platform agent productivity projected to rise by about 20% in three years.

Q: How did the home renovation business perform in Q1, and what is the outlook for future margins?

A: The home renovation business performed exceptionally well in Q1. In terms of scale, revenue reached RMB 2.9 billion, up 22.3% year-over-year, with cities like Beijing, Guangzhou, and Chengdu seeing revenue growth exceeding 50% year-over-year. In terms of profitability, the business’s contribution margin reached 32.6% in Q1, up 2 percentage points year-over-year, a record high.

Q: What are Shell’s broader AI strategy and investment plans for the coming quarters, and how do they align with total transaction volume goals?

A: In the early stages of contract conversion, designers can use AI to quickly generate proposals based on clients’ renovation styles and layout preferences, significantly improving the first-visit experience and increasing contract conversion rates. For example, in one case, the time from first visit to initial contract submission was reduced from 10 days to 6 days. During construction, we developed a smart construction system that uses installed cameras for real-time online inspections. AI can automatically manage core construction operations and assist in renovation acceptance, making quality assessments more quantifiable. In one case, the acceptance pass rate improved by about 2 percentage points.

For internal management, we have multiple AI employees that can automatically summarize and comment on daily reports, handle to-do lists, etc., reviewing about 20,000 reports in six months and saving the team over 18,000 hours. They also handle information distribution and automatic order segmentation, distributing over 5,000 pieces of information and sending over 100 reminders in six months. In the future, Shell’s AI development in the renovation business will focus on more precise insights into client needs and more efficient design.

Q: How does Shell Good Home contribute to new property development?

A: Shell Good Home’s business model provides new property product solutions for developers and other partners. Using patented algorithms and a vast database, it deeply understands target clients’ needs and preferences, predicting the types of properties and price points they desire. Developers can use this for project positioning and product design, aligning new supply with client demand.

Shell Good Home has participated in 9 projects of different models, fully validating its C2 capabilities through self-operated projects. For projects without equity partners, it focuses on product positioning, providing solutions and charging service fees without making investments. For the 7 projects involving investments, total investment reached about RMB 2.3 billion, with nearly RMB 500 million recovered by the end of Q1 and net investment of over RMB 1.8 billion. For example, the first IFT co-developed new property project with a partner sold out all initial units on the first day of launch, achieving nearly 30% returns at the shareholder level, demonstrating how its service capabilities enhance sales and operational certainty for partners.

Q: How is Shell Good Home’s C2M business reflected?

A: Shell Good Home has two key advantages: first, a deep understanding of potential consumer demand, enabling more timely and competitive analysis of key metrics to help developers make accurate decisions and allocate resources effectively; second, strong market awareness and pricing capabilities, leveraging actual transaction prices, real-time upstream data like owner rental prices and adjustments, and algorithmic valuation models for different geographic areas to estimate project and sector values more accurately and update them quickly based on market changes, better capturing trends.

With these advantages, Shell Good Home can reach clients in more innovative ways. Beyond connecting clients through the agent network, it also builds online communities via apps, allowing users to directly participate in evaluating and creating new property designs. For example, in Shanghai, users can construct and compare two property design schemes on a dedicated page. It has already provided the first C2M product solution service in a Xi’an project, charging service fees and demonstrating strong market recognition. For the Xi’an project, it offered a full suite of product solutions, including client service, product positioning, cost optimization, price forecasting, and market services, along with project planning suggestions like optimizing facade cost ratios, enhancing landscaping, and adjusting unit sizes to address key issues like quick capital recovery, product premium, and capacity needs.

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