Ke Holdings Inc
NYSE:BEKE
Earnings Call Analysis
Q3-2023 Analysis
Ke Holdings Inc
Beike, also known as KE Holdings, displayed resilience in Q3 2023, navigating a recovering real estate market with strategic foresight. The company contemplated future trends, transitioning from a transaction-centric model to enhancing living experiences. They marked the inception of their 'One Body, Three Wings' strategy, focusing on harmonizing separate business segments into a one-stop solution ecosystem. Beike's infrastructure and digital capabilities were crucial for exploring new opportunities, indicated by its RMB655.2 billion GTV, despite a 2% and 27% decline in existing and new home transactions, respectively.
With total revenue slightly up by 1.2% to RMB17.8 billion, Beike exceeded its own expectations, led by a remarkable 66% increase in contracted sales in home renovation and furnishing to RMB3.26 billion. Efficient operational refinements resulted in enhanced gross margins and robust profitability with GAAP net income jumping by 63.4% to RMB1,170 million. The foundation for these outcomes were recent supportive policies from the Politburo meeting, boosting market sentiment notably since September and promising further potential uplifts post-policy implementation.
Demonstrating financial prudence, Q3 saw Beike allocate substantial funds for share repurchases and dividends, enhancing shareholder value. Spending US$162 million on buybacks and US$200 million on special dividends reflected Beike's focus on disciplined capital allocation. Looking ahead, they aim to maintain this discipline, invest in organic growth sectors, and share benefits from development with shareholders, underpinning a long-term value creation ethos.
Beike forecasts a 7.5% to 10.5% revenue increase for Q4, with continued focus on strategic partnerships, cooperative ecosystems, and high-quality service development. Robust cash flow management and prioritization of investment in key value-generating areas highlight their roadmap for sustained organizational growth. Amidst a backdrop of improving market conditions, Beike is poised to leverage policy tailwinds to further catalyze its business trajectory.
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Ladies and gentlemen, thank you for standing by for KE Holdings, Inc. Third Quarter 2023 Earnings Conference Call. Please note that today's call, including management's prepared remarks and question-and-answer session will all be in English. Simultaneous interpretation of Chinese is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese language line. [Operator Instructions] Today's conference is being recorded. I would now like to hand the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting.
Thank you, operator. Good evening, and good morning, everyone, and welcome to KE Holdings or Beike's Third Quarter 2023 Earnings Conference Call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Yongdong Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to [ the ] call as we will make forward-looking statements. Please also note that Beike's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the company's press release which contains a reconciliation of the unaudited non-GAAP measures to the comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. For today's call, the management will use English as the main language. Please note that the Chinese translation is for convenience [ service ] only. In the case of any discrepancy, management statement in the original language will prevail. With that, I will now turn the call over to our Chairman and CEO, Mr. Yongdong Li Peng. Please go ahead, Mr. Yongdong Li.
Thank you Siting. Hello, everyone. Thank you for joining Beike's Third Quarter 2023 Earnings Conference Call. In the third quarter, the real estate market showed a notable rebound following the tone setting of the political [ Borough ] meeting and a series of supportive politics, including modification to first-time homebuyers qualifications in first-tier cities. The degree of support and the implementation of these variable measures as well as the real estate market performance, both well beyond our expectations. Our focus this year has been contemplating the future over the long term and align our strategy with it. We are entering a new phase that we call crossing the next mountain. This phase begins as the market continues its shift from same property purchases as investment assessed to prioritizing residential housing for the quality of living itself. In this transaction, we must also involve from a transaction-centric operating model to when that is dedicated to ensure better living [ endurances ] for our customers. This is a largely untapped market with vast opportunities, real estates will return to a focus on people's 'better living' signals and promising future ahead of us. With industry endurance and insights, we have cultivated over of the years, we are well positioned to grow in a new phase encompassing many possibilities or better living. Bieke has established the industry's most powerful infrastructure, our ACM throughout our existing home transaction business. If the infrastructure, integrating our online databases and traffic [ networks ] with offline stores and [ agent networks ] laid a solid base for us to explore new possibilities. Additionally, our management expertise for large growth in our digital capabilities and data-driven strategies collectively support our journey into this exciting future. This July, we took an important step toward our objectives by upgrading our corporate strategy to ‘One Body, Three Wings'. This is a key step in our roadmap to becoming a well-stop residential service platform for better living. As we navigate the dynamic landscape, we need a deeper differentiated mindset and knowledge base as well as a set of mutual principles and guidelines to identify core value propositions to drive us forward in the right direction. To that end, there are a host of key questions we are asking ourselves with the value can technology bring to both customers and our service providers. Our business segments are separated, but the customers are asking for a for a one-stop solution. In what ways can we unite our vertical business segment to create horizontal one-stop services that meet customers' needs? How can we maximize customers' living endurance and extend beyond merely delivering transactional value. With our value proposition to different stakeholders in our industry, including our partners and our service providers, how do we focus on offering true value and humanity care for our service providers rather than treating people as tools and channels. We're addressing the broader residential industry, do we look for growth through physical expansion or through generating chemical reaction to drive industry-wide evolution? The next step to posing this questions is calling on everyone in our organization to think about them and working together to address these topics while engaging in this crucial reflections to direct our strategy, we are also implementing the organizational modifications and business initiatives of our ‘One Body, Three Wings' strategy, which will be reflected in our performance metrics. With the -- with the easing of COVID restrictions, [ tons of ] demand drove the market recovery in the first quarter of this year. However, subsequent home transaction market activities deviated from historical seasonal trends. New home market is still facing some challenges. In the third quarter, we recorded a GTV for RMB 655.2 billion. There was a 2% and a 27% year-over-year decrease in existing home transaction and new home transactions, respectively, and our overall performance has exceeded the expectations. Our revenue for the quarter was RMB 17.8 billion up by 1.2% year-over-year. Year-to-date, GTV has grown by 23% with the existing home transaction up 28%, new home transaction up from 13%. In our efforts to manage risk and improve efficiency over the past 2 years, our 'One-Body' operations which is on home transaction services, are more agile and efficient. It's now time to broaden our collaboration with more industry partners and service providers and we then together to offering one-stop residential services for 'better living'. Here, we will further institute standardization for people, objects and services to promote the industry advancements of the next decades starting in the third quarter, we accelerated our [ store ] network expansions. In September alone, we added around 1,300 new -- newly connected stores nationwide, excluding Beijing and Shanghai. In the third quarter, contracted sales from our home renovation and furnishing business reached [ RMB 3.26 billion ], an increase of 66% year-over-year. Year-to-date, contracted sales reached RMB 9.39 billion, up 19% year-over-year on our pro forma basis. Additionally, contracted rental units on our rental property management services grew from 50,000 in the third quarter of 2022 to 160,000 in the third quarter of this year. Many of the metrics above mentioned are derived from our emerging businesses. More importantly, the long-term driver behind our business development is a consistently enhanced understanding of the industry [ net cap ]. Rapid growth and scalable operations have provided us with a deep understanding of the industry and capabilities to execute on small-scale testing approaches to make rapid business interaction across our service ecosystem. The buildup of such system systematic capabilities means knowing which metrics to use and how many parameters we should set in the business rather than how high the parameter is [indiscernible]. The deep dive and scale of our One-Body business have accelerated our scientific management and competitiveness. It's the equivalent of taking 50 steps forward. However, with our emerging business, we have not only just taking out first step. It's crucial to note that while growth and building scale are best goals, there are not the sole objectives. We also deeply understand the importance of supporting the industry ecosystem. Platform-wise, while we have notably improved our efficiency and our operational capabilities over the last 2 years, we need to be careful about past dependence, building and maintaining synergistic relationships with all of our partners, whether they are brands, store owners, or developers is of great importance to us. We will make an adjustment to our operational strategy to better improve store owners endurance and engagement, refining our platform capabilities in [indiscernible] store owner committees that ensure collaborative developments and [indiscernible]. We started Lianjia and Beike, driven by a will to make the industry better. And today, we need to adhere to underline with an understanding value in order to become an industry leader in advanced productivity is essential to bring unique value to the industry. We are not competing against existing service providers, our business partners in the industry, but rather against low-quality supply that damage the industry reputation and diminishes customer endurance. This is why we need to work hard to push for an overall improvement in the quality of the industry. Given our recent progress and the growing consumer demand for service and quality, we have seen tremendous promise. We also believe that one day we will proudly advocate for this industry. Thank you. Next, I would like to return -- to turn the call over to our CFO, Xu Tao, to review our third quarter financials.
Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our performance, I would like to brief touch upon some updates on recent housing markets. The third quarter saw the property market picked up from the bottom with month over month sequential recovery. Important policy directives were made during the [indiscernible] meeting in late July. We're driving new trends in real estate supply and demand. Since end of August, a wave of support policies has been rolled out with many cities [indiscernible] modified the criteria of first-time home buyer qualifications, lower down payment ratio, cut mortgage interest rate and then relax purchase restriction. Market sentiment notably improved with the transaction substantially rebounding in September. This recovery was particularly pronounced for the distinct housing market in first tier and some strong second-tier cities, where expectations for policy relaxation and the demand for housing upgrades are the most substantial. The recovery of new home market lag slightly behind it in home due to the varying demands across cities and the volatilities on developer supply side. Nevertheless, since August, there has been some improvement in the new home market and the new home subscription data on [indiscernible] showed both year-over-year and a month-over-month recovery in September. We have been proactively advancing our One-Body [indiscernible] growth strategy. In terms of our overall financial performance in Q3, we maintained resilient top line performance, with total revenue growing 1.2% year-on-year, reaching RMB 17.8 billion, exceeding our guidance among which we achieved a better-than-expected revenue for housing [ transaction ] services. We also made a remarkable breakthroughs for our home renovation and furniture business with revenue for which jumped in 72.1% year-over-year to RMB 3.2 billion. Notably, our enhanced operational capability, coupled with our careful cost discipline devised in previous years generated a gross margin of 27.4% for Q3, picking up by 0.4 percentage points from the same period last year. With overall revenue at a level relatively consistent with the same period last year, our GAAP net income saw a 53.4% year-over-year increase, reaching RMB 1,170 million, while non-GAAP net income go by 14.4% to RMB 2,159 million. Non-GAAP net margin rose by 1.4 percentage points year-over-year to reach 12.1%, showing a stronger profitability. Looking at our home transaction services in Q3, on national level, both existing and new home markets saw decline quarter-over-quarter and year-over-year due to notable quarterly disparity in market dynamics compared to previous years. However, benefited from our enhanced operational efficiency. Our GTV of [ new ] homes only fell by 2.2% year-over-year despite the higher base set by first tier cities in the same period last year. Revenue from existing transaction services declined by 11.9% year-over-year to RMB 6.3 billion. The bigger contraction of existing home revenue compared to that of GTV was primarily due to a lower contribution from the GTV served by the Lianjia brand, which has a high monetization rate. Lianjia GTV fell by 13% year-on-year on a higher base set by [indiscernible] in the same period last year, while existing home GTV sold by [indiscernible] agents increased by 8.1% year-over-year in Q3 and the revenue of which is recorded on a net basis, resulting in a gap between the growth rate of our revenue and GTV. Meanwhile, on September 26, [indiscernible] commission rate with buyers and sellers, each paying 1% of the property total transaction volume for about 12,000 ongoing transaction initiatives before the adjustments came into effect, while refunding to differences resulting from the rate adjustment and hiring to our principle of putting customers first. The corresponding impact has already been reflected in our Q3 in home revenues. We firmly believe that by sincerely serving our customers' best interest with a long-term trust as they bring us lasting growth opportunities. Contribution market for existing home transaction services was at 48.7%, reflecting a year-over-year increase of 2.6 percentage points and a quarter-over-quarter increase of 3.1 percentage points. This is indicative of how our core streamline cost structure has enabled us to achieve stronger prosperity in spite of year-on-year decline in revenue. Let's move to our new home business. The industry is ongoing a phase of reduced supply and continued risk mitigation, heightened by more than 30% year-over-year decline in sales from the top 100 developers in Q3. We have adopted an active strategy of responding channel collaboration with developers and continued to improve our business ecosystem, while strictly adhering to our risk control bottom lines. As a result, our new home GTV decreased by 26.5% year-over-year, outperforming the overall market. The decline of 24.3% in new home revenue was smaller compared to GTV, owing to a slight increase in our monetization rate. Our new home business contribution margin grew slightly year-over-year to 25.1% despite a decline in revenue, fully demonstrating our operational [indiscernible]. In Q3, the percentage of the commission income from [ SOE ] developers remain at 46%. [indiscernible] with commissioning the [indiscernible] module contributed 54% of the total commissions collected remaining at a high level. Regarding our emerging business, the revenue from our business, excluding home transaction services grew by 112% year-over-year versus percentage to total revenues rising to over 30% in Q3 compared with 50% in the same period last year. Our home renovation and the furniture business has remained on a fast track with a robust growth momentum that was not resilient on the trend of housing transaction services. Contracted sales reached RMB 3.3 billion in Q3, a year-over-year increase of 55.6%, with fast delivery and accelerate revenue cognition. Revenue grew at a higher rate of 72.1% year-over-year, reaching RMB 3.2 billion, a quarter-over-quarter increase of 21%. In Q3, Shanghai deposited 2 months with revenue exceeding RMB 100 million becoming a [ subcity foreign ] Beijing and Hangzhou to achieve monthly revenues surpassing RMB 100 million. Other cities are also growing rapidly. Cities, including Wuhan, [ Chengdu and Guangzhou ] achieving a quarter-over-quarter revenue growth of over 50% in Q3. Our customer acquisition capability continues to improve with both Beijing and Shanghai achieving this lease conversion rate in the middle to high single-digit percentage. The percentage of contract sales contributed by our home transaction services continue to increase to about 45% of total GTV. The sales of decoration home furniture increased by 93% to RMB 920 million with a proportion of 28%. The contribution margin for home renovation and furniture business in Q3 remains at 29.1%. A further solidified foundation in product design and [ SKU ] assembly is developing a positive cycle to offer profitability across the leading cities. Trend cities include Beijing, Shanghai and [ Hongdo ] realized a positive city-level profit in Q2 and Q3 consecutively. Among the top 10 cities in terms of the contracted sales, several of them are positive operating profits. The breakthroughs we have made has given us greater confidence in our strategy. In October, we announced the proposed acquisition [indiscernible] and the deal is subject to the customary closing [ conditions ]. This will strive to bring higher cart offering to the residential industry. In Q3, our net revenue from emerging and other services increased by 202.7% year-over-year to RMB 2.4 billion, primarily propelled by the expansion of our rental property management services. Contribution margin remained stable at 25.3% year-over-year. The total of our store costs and other costs remained stable in Q3. Our gross profit grew by 2.6% year-over-year, reaching RMB 4.9 billion as a result of our increased operating leverage. Our gross margin ticked up to 27.4% compared with 27% in the same period last year. In terms of expense, year-over-year, our GAAP operating expenses for Q3 totaled RMB 4 billion. increasing 12% from the same period last year. Our non-GAAP operating expenses amounted to RMB 3.1 billion, up 14% year-over-year, primarily due to the structural impact of the increased proportion from new business, including home renovation and furniture. Looking at quarter-over-quarter performance, we have maintained effective cost control in our home transaction services, notably with RMB 32 million by the provision written back during Q3, providing us with improved operational leverage.In terms of the [ profitability of ] the GAAP measures of income from operations for Q3 was RMB 911 million compared with RMB 1.2 billion in the same period last year. Our operating margin was at 5.1% compared with 6.9% in the same period last year. Our non-GAAP income from operations was RMB 1,886 million compared with RMB 2,108 million in the same period last year. Non-GAAP operating margin was 10.6% compared with 12% same period last year. The dip was mainly due to our investment in new business, including home renovation and furniture, which was in ramp-up period. Our GAAP net income for the quarter reached RMB 1,170 million, reflecting a significant growth of 63.4% year-over-year. Our non-GAAP net income increased by 14.4% year-over-year, reaching RMB 2,159 million. Non-GAAP net margin rose by 1.4 percentage points year-over-year to reach 12.1%. Now let me highlight our cash flow and the balance sheet metrics, excluding customer deposit payable, we realized the net operating cash inflow of RMB 2,658 million in Q3. The new home cash collected surpassed the new home revenue for 9 consecutive quarters with a tax-to-income ratio for the rising to 1.21. New home [ DSO ] for the first 3 quarters was fixed 2 days. In Q3, we spent approximately USD 162 million in share repurchase and around USD 200 million in special cash dividend. On top of that, our total cash liquidity, which accrued to customer deposit payable amounted to RMB 79.8 billion, up RMB 440 million from Q2. Over the recent period, supported by our solid cash reserves and prudent financial management, we will demonstrate our commitment to efficient capital allocation and delivery returns to our investors through the active share buybacks and dividend repatriation. This September alone, our total stock repurchase amount over USD 130 million. Since the initiation of our share repurchase program in September 2022 as of September this year the total number of shares that we have cumulatively repurchased amounted about 3.91% of company's total share prior to [indiscernible] program. Moreover, recently, we have completed a special cash dividend distribution totaling around USD 200 million. Looking at our guidance for the fourth quarter, we expect the total revenue to be between RMB 18 billion and RMB 18.5 billion, representing an increase of approximately 7.5% to 10.5% from the same period of 2022. This forecast includes the potential impact of the real estate related policies and the macroeconomic status that constitute the current and [indiscernible] review of our business and the market conditions, which are subject to change. The property market transformation and upgrade towards leaving and the strength of our organization structure have all bolstered our aspiration and momentum for continuous growth. Our focus remains on responding connections with top-tier industry capability and fostering a cooperative ecosystem of [indiscernible] and the [indiscernible] scenarios. We are simultaneously devising a high cadre service provider talent pool and formally dedicating resources in infrastructure development. As we thrive in the vast residential sector were positioned to respond into the significant opportunity that lies ahead. Our ability to effective balance scale, efficiency and financial stability has been first validated during the market fluctuations over the past few years. Under this volatility we also achieved a consistent improvement in business growth, profitability and cash flow. Looking forward, we will maintain our disciplined approach to financial management to further enhance our capital allocation efficiency. We will prioritize our investments in business areas that can bring key outputs and values, investing in growth, investing in the future. We'll also show the benefit of the development with our shareholders. We believe this will enable us to achieve organic and substantial growth, creating long-term value for our shareholders. This concludes our prepared remarks. Now we will open for the questions. Operator, please go ahead.
Thank you. [Operator Instructions] Wait for your name to be announced. If you wish to cancel your request [Operator Instructions]. If you're on a speaker phone, please pick up the handset to ask your question. As a reminder, we only accept questions on the English language line. For the benefit of all participants on today's call, please limit yourself to one question and if you have additional questions, please you can reenter the queue. If you're going to ask the question in Chinese, please follow with an English translation. Your first question comes from Timothy Zhao with Goldman Sachs.
Congrats on the very strong results. Just one question. Could you just provide us an overview of the housing interest in the market in the past quarter and what is our outlook for the fourth quarter this year? And after the mortgage easing policy announced in the third quarter, what is measurement observation in terms of the policy impact on home transactions?
Thank you, Timothy. Regarding your question, we noted that the investors pay close attention to the market change in property mortgage, I can share some of our perspectives. In terms of the policy, there has been relaxation or even remove of the restrictions on housing transaction in certain second-tier cities since the July [indiscernible] meeting. From the end of August, July, September, first tier cities have implemented policies to recognize household with mortgage tracker by the non-local property ownership as the first-time homebuyers. Additionally, Guangzhou being the first among Tier 1 cities has eased its home purchase restriction in September. Moreover, mortgage rates for both first- and second-time home in top 100 cities decreased by 25 and 34 basis points, respectively, year-over-year. In the third quarter, the [indiscernible] market improved from its June performance, driven by the anticipation of supportive policies to come on the subsequent policy release to elaborate the number of existing home transactions grew by single digits month over month in both July and August. This update shows that things are stabilizing and the recovery due to the expectation for new policies. After it's relaxed, first-time home buying qualification policy was implemented in September, our platform saw an upward surge in [indiscernible] home sales with growth rate of 25% compared to previous months and 32% compared to last year. In particular, for the first tier cities, the recovery actually starts quite early and they also rebounded most in September. After [indiscernible] meeting at the end of July, this city has already seen certain market recovery expectations. The number of the home showing and the listing increased by 5% to 10% from July to August, while transaction volume in September grew by over 30% month-over-month. Stronger second-tier cities like Nanjing, Hefei, Wuhan and Hangzhou, relaxed their home buying restrictions in September. That was stronger recovery in transaction volume of 25% growth month-over-month. This also demonstrates the fastness of the past [indiscernible]. For home prices according to data from [Baker Research Institutes], Beijing and Shanghai start to stabilize in July. And in September, the EBIT increased by 1.6% and 1.9%, respectively, compared to July. While many other cities across the country still saw a decrease in the home prices, the rate of decline has slowed down in September. The new home market in the third quarter of 2023 has also shown signs of rebound following the resurgence in existing home market. A notable disparity was seen in both the [prime] and demand side. Subscriptions for new homes experience of more than double-digit month-over-month recovery in August. However, in September, the new home subscription volume on the Beike platform increased by more than 40% month-over-month and 15% year-over-year. This is a significant divergence from the historical month over month decline with September over the last 3 years, indicating that this September rebound was largely driven by past support and the improved market sentiment, rather than seasonality. Transaction base typically lags behind the subscription data by about 3 weeks accordingly, more positive change in transaction data is restarted in October. A closer look indicates that -- that the new home market displays a high degree of disparity. In September, 1 year -- year-over-year growth rate for new home subscriptions was through the roof in first-tier cities by the 49%, pretty solid and stronger second-tier cities at [indiscernible]% but negative 18% for other low-tier cities. The demand for home upgrades is higher in first tier cities, the first-time home fire qualification policy helped pump more liquidity into this respective new home market and gave a big boost to those top-tier cities like Guangzhou, Nanjing and Changsha that have stronger fundamentals. But when they start on purchase restriction in the leading cities, it also caused the taking away some demand from neighboring low-tier cities. As new home sales market being heavily influenced by the supply side as relates to significant fluctuations in high-frequency data whilst the [in-home] market shows more consistency, making it a better indicator for overall market activities. Looking ahead, the positive effect of new parties will continue to unfold the data of existing home transaction in October has been pretty consistent on a weekly basis with a gradual increase. Nevertheless, it is important to remember that it takes time for policies to be kicked in and for demand to turn into actual sales nearly spanning several months. [indiscernible] new home price trends will make potential buyer cautious and the doubt wait and see attitude. To keep up with and stimulate home buying and upgrading objectives and attract mobile market, we need further policy support, stable housing price and the [indiscernible] that match the changing needs of consumers for [indiscernible] living conditions. Additionally, easing new purchase restrictions in different cities, along with the revised qualification for first-time homebuyers are expected to boost reasonable demand for first homes and further activate the transaction in the market.
Your next question comes from John Lam with UBS.
Congrats for great results. Question is regarding the new home business. So how do you see the property developers for the sales strategy in the upcoming fourth quarter strong season? And also how do they think about the collaboration with the channel? Regarding on the recent relaxation of the price gap for both property price and also the land price, would that mean that this is a positive to your new home business? Regarding on the operation, [ Pike ] has been the industry leader for the new home business. So any area for further improvement that could share to investor?
Thank you, John. The current new home market is complex and consistently changing, which poses significant challenges for our involved in the industry. Although new homes generally offer better [indiscernible] and can't be compared with existing ones. In cities where the risk is associated with the delivery per sold home on time consumers tend to lean towards buying these new homes. In key cities, the percentage of consumers interested in purchasing new home has dropped from 33% in 2021 to 70% in September. In one of our core central since cities, the proportion of the transaction in these new homes are rising from 25% in September 2021 to 70% this year. In a city like Chengdu, where timely delivery of presold is ensured more [indiscernible] people still prefer buying new homes. However, the situation has emerged, where prices of the new home are significantly higher than those of the existing homes. This creates a large price gap that handles new home upgrades or reduce developer motivation to increase even inventory and offer promotions. There are also cities where demand for new homes has considerably improved this year, such as Shenzhen. So weekly subscription volume of the new homes in Shenzhen reached a record high end of September. However, a considerable proportion of this recently increased demand has already been met through the talent housing supply. In response to market challenges, most big national and local developers are paid to really step up their sales game by the end of the year with more promotions along with policy support. On the other hand, some smaller local developers are taking easy starting in early September, following current process, some developers have taken the initiatives to start promoting the project, but we don't expect to primarily rely on the significant price reductions. In terms of the developers working with the brokerage services, the penetration rate for [ book ] market to the new home market has been on the rise this year. For instance, in Q3, the penetration rate of broker service in Shenzhen increased by 6% compared to the same period of last year, while Chengdu witnessed a growth of 10% to 15% year-over-year. Although developer sentiment may fluctuate due to the market change, a relatively stable and balanced cooperative relationship has been established. From Beike's perspective, our goal is to establish a mutually beneficial partnership with developers where we can cooperatively create additional value for customers. The low satisfaction level among customers regards to the new home product is one of the main reasons why market lacks momentum. By gaining deeper insight into the customer preference through interactive data analysis and extensive research, we can [indiscernible] better products that cater to the new home housing upgrade needs while also enhancing the overall experience. Recent projects like Chengdu one on [indiscernible] River side, in [ Haninge ] and the Beijing Huan Sino Park demonstrates the high cost of new home products still generate significant demand in today's market. This divergent indicates the care, direction, for future development in the new home market. Additionally, if 1.0 for area to one area ratio restriction is to be removed for largely public area, it can really help boost the development of high-quality, low-density residential property in future housing market. This will stimulate improvement in demand and enable [restaurants] to experience the leap forward in their future housing experience. Going forward, as we consolidate and deepen our fundamental work in core areas such as commissioning the [ development ], cooperation with state-owned developers and a focused sales strategy, we will prioritize enhancing our new home market coverage and the sell-through to withstand potential market downturn risks. Our strategy will primarily cover the following: number one, building new partnership with developers as developers move from local autonomy to a centralized management, we will work closely with them at every level to establish deep and meaningful collaborations. Number two, we will tailor our strategy and policies to individual cities. Number three, refund operation management, we will [indiscernible] our infrastructure starting with our housing sectional ecosystem, standardize [indiscernible] and building the skill to make the product that the customer will love. Thank you.
Your next question comes from Xiaomeng Zhuang with Bank of America Securities.
So my question is like historically, we have seen M&A was used to grow our company's home brokerage business and company recently also announced a proposal to acquire [Quintana] to further grow the home furnishing business. So can management share your thoughts about the importance of M&A versus organic growth in your growth strategy and also your thoughts about the future investment and the pace of it?
Okay. Understand. Thank you for your question. So generating sustainable internal innovation and organic growth is definitely a long-term goal for us. In the process of achieving the long-term goal, we have some phased strategy opportunities that we need to achieve to revolutionize the home innovation and furnishing industry, we need to have ample scale and business density in a single city. This allows us to experiment, refine and enhance our competencies promptly. Acquisition is the most suitable route to achieve this short-term strategic opportunity. Hence, our emphasize on acquisitions isn't mainly for immediately the revenue or financial growth, but to attain the necessary scale and density as a fertile piece of land to force the industry innovation. It's very difficult to kickstart our industry transformation results and existing scale. Many capabilities can only grow up with certain operational scale but in the home renovation sector, that kind of scale has been pretty real historically Furthermore, the requirement for achieving a billing $30 billion or $15 billion scale [indiscernible] city differ across, whereas capabilities is like evolution. We must remain agile and nonconformity to establish [indiscernible]. For example, with a strong presence in the city or region, we can establish the entire scale, supply chain and delivery process, which allow us to tap into economical scale, addressing deeper rooted industry challenges and protecting a way for our transformative business methodology. Looking ahead, if acquisition can help us more effectively achieve the strategic objectives then they are crucial and valuable. However, they are just a means to reach a grander vision, not the end goal. Right now, acquisition brings in a necessary resource and like-minded individuals. I think these are important assets for transforming the industry. That's my answer. Thank you
Your next question comes from Xiaodan Zhang with CICC.
So the company has made remarkable progress in standardization and digitalization of your core business in the past years. So how should we think of it in terms of the emerging home renovation business? It would be great if you can share with us some of the milestones you have achieved. Thank you.
Thank you, Sophie. To start with, the home renovation supply chain is long and complicated. Not all stage can or should be standardized. We can break it down into 3 categories; standardization, personalization and the [indiscernible]. Standardization is [indiscernible] in pricing, customer practice and streamlined process of rules. Personalization within this offering is offered by our tailor design solution and a rich variety of products that are offered. The degree of the standardization or personalization for renovation mature lie somewhere in between. There is 2 ways: mature selections are based on stringent criteria while still providing our customers with onboard diversity to make a personal choice that makes their individual tastes. While we have standardization, we need to reshape the process and set standards. We will define the distinct roles within our operational flow, establishing a set of mechanisms for collaboration, plus allocation and gate incentives. For example, in terms of the low definition and fee settlement for renovation construction, it used to be common practice in the renovation industry for the project managers to bring their own team of workers and control the workshop, whilst the renovation company only dealt with payments by the project manager, this often results in the project manager starting off at a loss position when they took on the new project. This led several issues. Therefore, that's put into the actual charts and task for more profit and the manager access labor scheduling for other projects. Additionally, many renovation companies have limited expertise in managing workers and leading to the [indiscernible] issues. On our platform, our [indiscernible] role is to ensure a project goes smoothly and the customers are happy and they are not allowed to take money, their job is to manage project time lines, ensuring labor delivery quality [indiscernible] and so on, all of which improve customer satisfaction. While the platform is responsible for dispatch of orders, setting up standards and certifying workers' colocation, implementing evaluation under reward system, et cetera, and the complete salary settlement based on the performance system centered around the [indiscernible] services. As such, we will define those workflows, standards and the incentive mechanism within the industry. Regarding utilization, it is essentially the manifestation of indeed in such understanding and serves as a means to facilitate the implementation of standardization. Here, let's take the example of [indiscernible] manager and workers for illustration again. This part of the digitalization is now achieved through our Home [indiscernible] system. This module covers various submodules such as project schedule management, material dispatching and construction [indiscernible] control. This enables augmented assignment of tasks, tracking of the main material orders, acceptance inspections, certification processes, et cetera, providing a streamlined management approach. Additionally, it encompass digital time management for both workers and project managers, including scoring system, performance incentives, training certification and more. The home star system will be upgraded to version 2.5% in November. This new version combines industrial expertise of both Chengdu and the Beike, making it the most compatible and inclusive of the various modules like construction delivery, customer acquisition, sales centralized design control, supply chain delivery in proven choice and the data strategy. Moving forward, our focus will be on [indiscernible], the designer and the delivery middle office module in order to standardize workflow process and achieve, 'what you see is what you get' design approach. This will also save [indiscernible] time in reputable workers and improve our interaction with client design solutions, which they care more and more these days. Lastly, we want to reiterate that the core goal of standardization and systemization that we establish a customer-centric digital infrastructure that supports industry ongoing development. This infrastructure should be able to accommodate the diverse industry players, allowing participants across the value chain to operate on the streamlined and the well-structured guideline. As we gain deeper understanding of the industry through this experiment and its provision in various cities as well as the collision of our dealers following the merchant acquisition, we will continue to rapidly iterate the process of standardization and digitalization. Thank you.
Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Siting Li for closing remarks.
Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations team. Do the contact information provided on our website. This concludes today's call, and we look forward to speaking with you next quarter again. Thank you, and goodbye.