Key Takeaways:
KE Holdings Inc. (2423.HK) reported a 15.7 percent rise in first-quarter adjusted net income to RMB 1.61 billion, even as revenue fell 19 percent amid a challenging Chinese property market.
"We also continued to advance efficiency-driven growth, with significant improvements in both operating quality and profitability," Stanley Yongdong Peng, Chairman and CEO, said in a statement.
The Beijing-based property platform's revenue fell to RMB 18.9 billion ($2.7 billion) from RMB 23.3 billion a year earlier. Adjusted earnings per American depositary share were $0.21, beating the consensus estimate of $0.15. The company's gross margin expanded to 24.1 percent from 20.7 percent in the prior year period, which it attributed to cost optimization and a higher contribution from existing home sales.
Shares slipped 1.85 percent in pre-market U.S. trading as investors weighed the sharp drop in transaction volume against the improved profitability. The results highlight a strategic shift from scale-driven expansion to efficiency-driven growth as the company navigates persistent weakness in China’s real estate sector.
KE Holdings' total gross transaction value (GTV) decreased 15.6 percent year-over-year to RMB 711.7 billion. The decline was primarily driven by a 37.2 percent drop in GTV from new home transactions, which fell to RMB 145.9 billion. GTV from existing home transactions saw a smaller decrease of 7.9 percent to RMB 534.4 billion.
Despite the top-line pressure, the company's focus on cost controls bore fruit. Total operating expenses decreased by 22.3 percent to RMB 3.3 billion. This led to a significant expansion in profitability, with income from operations rising to RMB 1.27 billion from RMB 591 million in the same period last year. Adjusted operating margin reached 8.8 percent, the highest level in seven quarters, according to CFO Tao Xu.
The company also increased its share buybacks, repurchasing approximately $195 million of its shares during the quarter, a 40 percent increase year-over-year. KE Holdings did not declare a dividend.
The mixed results underscore KE Holdings' strategic pivot. Faced with a protracted downturn in China's property market, the company is focusing on improving the quality and profitability of its operations rather than purely chasing transaction volume. The widening margins suggest this strategy is yielding positive results, allowing the company to grow profits even as overall market activity remains subdued.
The divergence between new and existing home transaction volumes is also notable. The steeper fall in new home GTV reflects the ongoing liquidity challenges faced by Chinese developers, which has dampened new construction and sales. The more resilient existing home market, where Beike's Lianjia brand holds a leading position, provided a partial buffer.
The increase in shareholder returns through buybacks signals management's confidence in the company's long-term value, despite the near-term market headwinds.
The Q1 results indicate that KE Holdings' focus on operational efficiency can deliver profitability even in a weak market. Investors will watch the company's upcoming earnings call on May 19 for further details on its outlook and strategy for navigating the uncertain Chinese real estate landscape.
This article is for informational purposes only and does not constitute investment advice.
