Record of shell financial report telephone meeting: the current collection state is very healthy

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On August 12, shell (NYSE: BEKE) released its second quarter financial report and first half financial report as of June 30, 2021. According to the financial report, the operating revenue of shell in the first half of 2021 reached 44.9 billion yuan (RMB, the same below), a year-on-year increase of 64.6%; The total transaction volume (GTV) reached 2.29 trillion yuan, a year-on-year increase of 72.3%.
After the release of the financial report, Peng Yongdong, chairman and CEO of shell, and Xu Tao, CFO of shell, attended the teleconference, introduced the operation and financial status of the company in the second quarter and the first half of 2021, and answered questions on the spot.
The following are the main contents of the analyst teleconference:
Q1: Stanley (Peng Yongdong) and Taoge (Xu Tao), good morning. My question is about the commission rate. There are rumors in the market that the commission rate of brokers may face some restrictions. What is the management’s view on this and what is the expected commission rate in the next few quarters?
Xu Tao: there are many rumors about the commission rate of stock housing business recently, especially the screenshot of wechat circle of friends widely spread in many social network groups a few weeks ago. This is false news. We have been maintaining close communication with relevant competent authorities and actively reflecting relevant issues. So far, we have not received any information on limiting the commission rate of housing transactions.
I think the goal of establishing a long-term mechanism of the housing market is to curb the rapid rise of house prices, not to restrict housing transactions and related services. On the one hand, house price stability is to avoid negative impact on people’s livelihood and consumption. On the other hand, the short-term policy objective is to support the long-term healthy growth of the population and the improvement of the population structure. In the case of stable house prices, a long-term market with balanced supply and demand can support a wider range of consumers to improve their living quality and live a better life. Continuously improving the quality of life is a solid foundation for sustained and healthy population growth. Therefore, we believe that under the policy of no speculation in housing, housing and housing, the market environment is conducive to the development of shells for a long time, and has not changed.
To sum up, as I have mentioned many times, the commission rate can reflect the service quality, transaction efficiency and service commitment. It is a false proposition not to talk about service quality and service commitment, but only about the rationality of charging. Like water without source and trees without roots. Looking ahead, shell will continue to invest in infrastructure construction, provide more subsidies, support broker professional skills training and store development, and bring more value to the industry.
Q2: your company has been in China’s real estate market for 20 years and has experienced many cycles. Could you introduce the cycles your company has experienced and how long it took for each cycle to change from negative growth rate to positive growth rate? Thank you. Based on the past two or three cycles, can you tell us how many quarters were negative growth before positive growth? We fully understand that your company keeps pace with government policies, that is, to achieve pricing and price stability. Can you tell us when the market is fragile, when the trading volume may decline sharply, and when it will not decline again. Could you introduce the market situation of Shenzhen last quarter and next quarter? Thank you.
Xu Tao: Thank you. In the first half of 2021, the market was very hot. Under the high heat of local transactions, credit began to tighten in the second quarter. Overheated cities successively issued a number of regulatory policies, and the market began to cool down.
On the credit side, it is expected that the credit control will remain tight in the second half of the year, the mortgage interest rate will continue to rise, the loan approval and lending cycle will be prolonged, and the bank’s mortgage line will be tight.
For the stock housing market, we expect that in the third quarter of this year, GTV in the stock housing market will slow down as a whole due to the credit crunch and the effectiveness of other policies such as guidance price.
As far as the new housing market is concerned, the third quarter is traditionally off-season. Coupled with the impact of loan restrictions and insufficient supply of new houses, we believe that the new house sales market may slow down month on month in the third quarter, but it will recover with the advent of the peak season in the fourth quarter.
We expect the GTV of the new housing market to decline year-on-year in the second half of the year. However, due to the slowdown of stock housing transactions, it is more difficult for developers to obtain customers, and developers will rely more on broker channels in the second half of the year.
For shell and chain makers, we have gone through 20 years of history and experienced the ups and downs of seven market cycles. I would like to invite our chairman of the board of directors to elaborate on this.
Peng Yongdong: Yes, I’ll share it. Because we are also very concerned about the cyclical problems of the industry, including what we think under such circumstances. I would like to share with you how the industry periodicity comes into being. I think maybe some analysts or investors don’t know much about this industry, so they feel a little uneasy after meeting this situation for the first time, but I can share with you how this volatility comes about.
In fact, a city or an industry has its growth path. Let me give an example. We take a city as an example, such as Beijing and Shanghai. Each city industry has a maturity. For example, in Beijing, there are 8 million to 9 million sets of stock houses. If the annual turnover rate is 1%, it is relatively low. If the turnover rate is 4%, it is relatively high. Therefore, the market has a stability, which is equivalent to the relationship between volume and price. For example, if the transaction volume in Beijing exceeds 25000 units a month, a change will be found at this time, that is, the house price will rise rapidly, and then the transaction volume will rise rapidly. If the basic house price is less than 20000 units, the transaction volume will be relatively stable, which is a micro market situation.

In the past two decades, any city has had stable trading volume at the micro level and fluctuated around the trading volume. If the trading volume significantly exceeds the stable trading volume, the price will rise sharply. Therefore, in two years, the trading volume fluctuates slightly up and down around the steady state of the city. The price is relatively stable or the price is rising slightly. This slight increase is probably a slight increase linked to GDP. At this time, the price will be relatively stable. In the last year of three years, the trading volume will rise sharply, and then the price will rise sharply, which will lead to the destruction of an equilibrium of the whole market. Therefore, corresponding policies will be issued at this time. Therefore, we found that the industry used to be a cycle every three years, which was stable in the first two years. In the third year, the rapid rise in price and volume entered three years after the policy adjustment, Maybe this is such a rhythm.
In the past, starting from the end of 2008, 2011, 2014, 2017 and 2020, it was basically the same. There was a cycle every three years, so it was a cyclical industry. But there are several things that change around it: first, house prices will rise steadily and orderly in the process, but there will be some fluctuations in the process; The second is that the maturity of a city is changing. For example, just now I mentioned that after any city revolves around this rhythm, if the original turnover rate is 1%, the market will be unstable. As the market continues to mature, the turnover rate may reach 2%, and the turnover rate of 2.5% is still relatively stable. For example, the United States may remain stable at 3.5% – 4% this year, so it is a sign of the maturity of the industry, That is, when you how much the trading volume of a city is, it can also bring price stability. This is a big trend, so this is the essential reason for fluctuations.
So you can understand that the first question asked by a partner just now is that the most important policy in the field of housing is “housing without speculation”, that is, house prices should not fluctuate rapidly and irrationally, which is very important to the industry. So we can see that, for example, taking the adjustment in 2017 as an example, for example, house prices in Beijing increased by 62% in the 19 months from 2015 to 2016, and in Shanghai by 65% in the 18 months from 2014 to 2016. When the market encounters such changes, corresponding policies will appear in most cases. In fact, it also responds to the questions asked by partners just now, which is the most important for the stability of the industry, We hope the industry will develop steadily.
If you know our development experience, it is also very interesting. That is, in the year of policy adjustment every year, that is, 2008, 2011, 2014 and 2017, we will generally do something “difficult and correct” in the next year. The market was not good in 2008. In 2009, we began to do scientific management. In 2012, we began to do real houses and focus on customer experience and online. In 2015, we began to do nationalization, and in 2017 and 2018, we were doing shells. Why do you choose this? In each policy year, we mainly think about two things:
First, it is very important to further think about what value we can create.
Second, it will let us see more long. Why is it chronism? After going through many highs and lows, we believe in long-term ism. Therefore, for shells, this sentence is because after many highs and lows in the past, we will believe it more and more, because it is not so easy to believe that a thing will be done after going through it. In 2021, we will have more services around housing and social responsibility. These things are what we should do and create value. This is our thinking.
From this year, the most important thing in this industry is “housing without speculation”. The overall tone is to be stable, including house prices, land prices and expectations. I think policies and measures will bring a more stable environment to the whole industry. The core essence is how to remove the irrationality of house price itself, which is unfavorable to the whole industry and the shell. So we think that no matter what we think of it, over the years, we have insisted on creating value. At the same time, combined with our own ability, we can create greater value in a larger field, so that we can go through the time cycle. This is the answer to the question just now. thank you.
Q3: my question is related to liquidity. Some head developers and some small developers are facing this concern. How should we measure the potential impact of liquidity on our new home sales business? How many bad debt reserves have your company confirmed so far? If this liquidity problem persists and escalates, will it affect the new house commission rate of our new distribution business in the future? thank you.
Xu Tao: OK, thanks for asking. Our collection status is very healthy. Our DSO continues to decline, which is due to the company’s strict revenue recognition standards for new house sales. The company will comprehensively evaluate the historical payment collection rate of developers and recognize the income of high-risk developers on a cash basis in accordance with C-SOX accounting standards. Therefore, our revenue recognition is very cautious. The company has also taken various measures to ensure the safety of collection, including necessary measures such as litigation preservation, which has continuously improved the collection of accounts receivable.
In addition, I want to share a message. By the end of the second quarter, shell was currently providing services to more than 7000 projects and more than 240 developers across the country. The business concentration remains healthy, and the top ten developers account for about 25.5% of our trading volume. The top 100 developers account for about 63%. Therefore, our business concentration is very low, and the bad debt risk of a single developer is relatively low.

I also want to share with you that this problem is also related to our views on the overall new home sales market trend. We believe that the recent restrictions on stock housing transactions will eventually affect the new housing sales market. In order to improve potential consumer conversion and cash collection, real estate developers allocate more stock houses to shell and other channels. The higher demand of developers for channel sales will eventually promote the growth of shell new house transaction services. We say that cash is king. We have also made great efforts in the overall access / process monitoring of the project to ensure timely and full payment collection. thank you.
Q4: I have two questions. The first one is about a local government preparing to establish a website and asking the broker to upload the real listings to the website. Although the website is still in its early stage, I would like to know how the management sees it? Will it affect the way shells operate or work? The second issue is the regulations on antitrust and data security. How will these regulations affect shells? thank you.
Xu Tao: Thank you. Yes, we did hear some news from Shenzhen. First of all, as far as we know, this is a government service system, which has existed before. This time, it is upgraded. The purpose of the upgrade is to improve the standardization of the real estate transfer transaction process and help the standardized development of the market.
Our underlying operating logic is highly consistent with other e-government systems. The system will further realize real houses and promote cooperation among brokers. This is in line with our cultural concept of transparency, cooperation and win-win. Advocating real housing is the embodiment of our culture. Some companies that rely on fake houses, and even companies that “jump orders”, will face challenges. It is obvious who will benefit and who will face challenges. We believe that the introduction of the system will promote benign competition in the industry. We are not worried. We fully support it.
With regard to antitrust, first of all, we want to clarify again that the company has not been investigated by antitrust so far. In May, like other 33 enterprises, we submitted the self inspection and rectification report in time. Shells always operate within the scope of laws, regulations and rules. We always put the interests of users in the first place and spare no effort to achieve a win-win situation through the cooperation mechanism. We adhere to and are committed to promoting the healthy development of the industry, solving the problem of untrue housing supply, and strive to be a fully compliant and excellent company.
Through this round of communication with government departments, including the State Administration of market supervision and administration, as an enterprise, we have strengthened our determination to put social responsibility in the first place. At the same time, government departments also have a deeper understanding of the business model of shells.
For example, our brand Weitang, which invested 700 million yuan in Shenzhen, is committed to providing affordable and high-quality rental services for young people living in large and medium-sized cities and creating more social value for the local community. One of the projects was reported by CCTV news on July 31. I hope I answered your question.