Seeking Alpha·2024-08-14 05:34Core Viewpoint - KE Holdings (Beike) has demonstrated resilience in its business model despite the ongoing slump in China's real estate market, maintaining a "buy" rating due to significant upside potential at current valuations [2][9]. Group 1: Q2 2024 Financial Results - Gross transaction value (GTV) increased by 7.5% year-over-year [3]. - Net revenues rose by 19.9% year-over-year [3]. - Adjusted operating margin improved to 12.0% in Q2 2024 from 11.0% in Q2 2023 [3]. - Adjusted net income increased by 13.1% year-over-year [3]. Group 2: Revenue Breakdown - Net revenues from home renovation and furnishing surged by 53.9% to RMB4.0 billion ($0.6 billion), contributing 17.2% to total revenue, up from 13.3% in Q2 2023 [4]. - Net revenues from home rental services skyrocketed by 167.1% to RMB3.2 billion ($0.4 billion), representing 13.7% of net revenue, compared to 6.2% in Q2 2023 [4]. - Existing home transaction services saw a 14.3% increase in net revenues, driven by a 25% growth in GTV [5]. - New home transaction services experienced an 8.8% decline in net revenues due to a 20% drop in GTV, although this decline was less severe than the overall market's 21.5% decrease [5]. Group 3: Market Share and Competitive Advantage - BEKE's outperformance in the market is attributed to four key factors: special incentives for agents, expanded coverage of core state-owned developers, technology tools for identifying potential buyers, and an increase in the number of agents on its platform [5]. - The year-over-year sales decline in Q2 narrowed month-by-month, indicating a potential stabilization in the real estate market [5]. Group 4: Financial Health and Share Repurchase - BEKE generated RMB4.8 billion ($0.66 billion) in operating cash flow and held RMB59.7 billion ($8.2 billion) in cash and equivalents [6]. - The company announced an increase in its share repurchase program from $2 billion to $3 billion, reflecting confidence in its financial position [6]. Group 5: Financial Projections and Valuation - Projections indicate a continued decline in new home sales over the next two years, while existing home sales are expected to rebound [7]. - BEKE's margins have been revised upward based on better-than-expected Q2 results [7]. - A valuation of 14 times P/E multiple is applied, representing a 60% discount to the sector median P/E multiple due to perceived risks [7]. Group 6: Conclusion - BEKE has increased its market share during a challenging period, with signs of stabilization in new home sales and growth in existing home sales [9]. - The company's new business initiatives are showing strong growth momentum, suggesting more than 50% upside potential from current prices [9].