Siting Li: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings First Quarter 2026 Earnings Conference Call. I am Siting Li, IR Director of KE Holdings. Please note that today’s call, including management’s prepared remarks and Q&A session will all be in Chinese. Simultaneous Interpretation in English will be available on a separate line. [Operator Instructions] Please note that conference call is being recorded. The company’s financial and operating results were published in the press release earlier today and are posted on the company’s IR website. With us today, we have Mr. Stanley Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Xu Tao, our Executive Director and CFO. Mr. Xu will provide an overview of our business updates and our financial performance.

Then Mr. Peng will share more on our strategic transformation and insight. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this 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. Unless otherwise stated, all figures mentioned in today’s call are in RMB. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial sources, Neither the company nor any of its representatives has independently verified such data, which may involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information and estimates.

For today’s call, management will use Chinese as the main language. Please note that English translation is for convenience purposes only. In the case of any discrepancy, management statements in the original language will prevail. With that, I will now turn the call over to our CFO, Mr. Xu Tao, please go ahead.

Tao Xu: Thank you. Hello, everyone. Thank you for joining our Q1 2026 earnings call. First, let me summarize the financial highlights of the quarter. In Q1, our non-GAAP operating profit reached RMB 1.67 billion, up 45.1% year-over-year and 416.2% quarter-over-quarter. Non-GAAP operating margin stood at 8.8% reaching the highest level in the past 7 quarters. The optimization of our cost and expense structure in 2025 has been reflected in our operating profit in Q1 this year and we expect it to provide a long-term positive support to our operating performance going forward. Guided by the strategic focus on balancing scale and efficiency, we have rolled out new initiatives, including refining depth operation and technology-driven empowerment.

In Q1, the contribution margin of all of our core business lines improved year-on-year, reflecting the translation of our cost structure optimization efforts in 2025 into our income statement. We believe this is a structural improvement rather than a cyclical one. Even with a year-on-year decline in the revenue in Q1, our contribution margin continued to expand, validating the release of profit elasticity. Meanwhile, our operational efficiency continued to improve the absolute amount of R&D, selling and administrative expenses all decreased both year-on-year and quarter-over-quarter marking the effectiveness of our refined management and the cost to control measures. Driven by the simultaneous improvements in both gross margin and operating expense ratios on a year-over-year and quarter-over-quarter basis, we saw a further release of operating leverage with a non-GAAP net profit margin hitting a record high for the past 7 quarters.

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In addition, we continue to deliver on our commitments to shareholders. During the quarter, we spent around USD 195 million on share repurchases and increasing of about 40% year-on-year. This move not only represents ongoing returns to shareholders but also underscores our firm confidence in the company’s sustainable and steady development over the medium to long term. Turning to our key financial metrics for Q1. Due to the high base from the real estate market in the same period last year, the group’s GTV and revenue declined year-over-year. GTV was RMB 711.2 billion, down 15.6% year-over-year, the revenue was RMB 18.9 billion, down 19% year-over-year. That said, we achieved a meaningful improvement in operating efficiency. The group’s gross margin reached 24.1%, up 3 percentage points year-over-year, driven by gross margin expansion and improved operating efficiency.

Our net margin also increased year-over-year. In the first quarter, GAAP net income was RMB 1.26 billion, up 46.7% year-over-year, while the non-GAAP net income was RMB 1.61 billion, up 15.7% year-over-year. Now let me provide you some more details. For our existing home transaction services, business scale declined year-over-year due to the high base in the same period last year, while profitability continued to improve. In Q1, GTV reached RMB 534.4 billion, down 7.9% year-over-year and up 10.9% quarter-over-quarter. Revenue from existing home transaction services reached RMB 6.1 billion, down 10.7% year-over-year and up 12.7% quarter-over-quarter. The GTV declined less than revenue year-over-year, mainly because of the higher proportion of existing home transaction GTV facilitated by connected agents, where revenue is recognized on a net basis of platform services fee.

On a quarter-over-quarter basis, revenue growth outperformed GTV, mainly due to improvement in Lianjia’s commission rate, in particular, platform service revenue increased by 3.8% year-over-year and 12.5% quarter-over-quarter, outperforming the overall GTV and demonstrating resilience of our platform model. Despite the year-over-year decline in revenue scale, contribution margin for the existing home transaction services reached 41.3% at the highest level in the past 7 quarters. It was up 3.2 percentage points year-over-year, mainly attributable to the decline in the fixed labor costs driven by the optimization of the Lianjia’s agent and store scale as well as improved organizational efficiency. The contribution margin also increased by 0.9 percentage points quarter-over-quarter, mainly driven by the operating leverage from the revenue recovery in Q1 with fixed labor costs remain relatively stable.

For new home businesses, business scale declined year-over-year due to a high market base in the same period last year, while profitability improved year-over-year. Q1 GTV reached RMB 145.9 billion, down 37.2% year-over-year, and 29.5% quarter-over-quarter. New business revenue was RMB 5.1 billion, down 37% year-over-year and 30% quarter-over-quarter. The year-on-year and quarter-over-quarter GTV performance was largely consistent with revenue, reflecting our stable monetization capability for the business segment. Even amid significant fluctuations in scale, Q1 contribution margin of the new home business was 25.7%, up 2.3 percentage points year-over-year, benefited from cost structure optimization brought by refined operations. It fell 2.6 percentage points quarter-over-quarter, mainly due to the high base cost divided one-off factors in the previous quarter.

For home renovation and furnishing Services, Q1 revenue reached RMB 2.3 billion, down 20.6% year-over-year and 35.3% over quarter. The year-on-year and quarter-over-quarter revenue decline was due to our proactive exit from low-quality and efficient customer acquisition channels as well as cities with poor EV models. The contribution margin of the home renovation and furnishing business was 36.2% in Q1, up 3.6 percentage points year-on-year mainly driven by material cost of savings from our continued efforts in centralized purchasing and tender-based local procurement as well as labor cost of savings from improved order assignment efficiency. On a quarter-over-quarter basis, contribution margin increased by 7.4 percentage points mainly due to material cost savings and low base effect from certain one-off factors in previous quarter.

For our home rental services, revenue in Q1 reached RMB 500 million, representing a slight year-over-year decline of 1.5% and a quarter-over-quarter decline of 7.4%. The decline was mainly due to the continued iteration of Carefree Rent toward our lighter and lower-risk product model with a higher proportion of the home units recognized on a net revenue basis, which had a temporary impact on reported revenue scale. However, this doesn’t change the growth strategy, a trajectory of our managed rental unit and service capability. As of the end of the Q1, the number of rental units under our management exceeded 740,000 units representing an increase of around 47% year-over-year. Meanwhile, contribution margin for our home rental services business reached 14.8% in Q1, up 8.1 percentage points year-over-year and 4 percentage points quarter-over-quarter marking the sixth consecutive quarter of sequential improvement, this was mainly attributable to two factors.

First, proportion of products recognized on a net revenue basis, which have higher contribution margins continue to increase. Second, labor cost per unit declined driven by productivity improvements enabled by AI and a more specialized division of labor. For emerging and other businesses, net revenue in Q1 was RMB 321 million, down 8.1% year-over-year and 30% quarter-over-quarter. Now let me walk you through the specific key financial metrics for the quarter. Q1 store costs were RMB 571 million, down 20.3% year-over-year and 19.6% quarter-quarter, mainly benefiting from the rental cost optimization and store network adjustments. For Lianjia, Q1 gross profit decreased by 5.4% year-over-year to RMB 4.6 billion and decreased by 4.1% quarter-over-quarter.

Gross margin was 24.1% up 3.5 percentage points year-over-year and 2.7 percentage points quarter-over-quarter. Gross margin expanded year-over-year driven by 3 factors: first, improvement in brand of services contribution margin; second, favorable mix toward the existing home transactions, which carry a higher contribution margin; third, improvement in existing home contribution margin. Sequentially, the expansion was mainly due to higher mix of existing on revenue and improvement in existing home contribution margin. Q1 total GAAP operating expenses were RMB 3.3 billion, reaching the lowest level in nearly 3 years down 22.3% year-over-year. This was mainly attributable to the operating leverage relief from improved organizational efficiency, strengthened the financial discipline and optimize the marketing spending efficiency.

Operating expenses decreased by 33% quarter-over-quarter, partly due to the high base from onetime expenses related to the organizational efficiency improvement and resource allocation in the prior quarter. Specifically, general and administrative expenses were RMB 1.7 billion, down 8.6% year-over-year, mainly due to a decrease in share-based compensation expenses. On a quarter-over-quarter basis, G&A expenses decreased by 24%, mainly due to the high basis of onetime expenses in the prior quarter and low expenses driven by the improved organizational efficiency. Sales and marketing expenses were RMB 1.1 billion, down 39% year-over-year, mainly driven by the improved and organized efficiency and more refined management of marketing and promotion expenses.

On a quarter-over-quarter basis, sales and marketing expenses decreased by 43.9%, mainly due to the seasonal factors and a high base of onetime expenses in the prior quarter. R&D expenses were RMB 493 million, down 15.6%, mainly due to improved organizational efficiency and lower technical services fees. On a quarter-on-quarter basis, R&D expenses decreased by 31.1%, primarily due to the high base onetime expenses in the prior quarter. Moving to our bottom line performance. Our GAAP operating profit was RMB 1.27 billion in Q1 compared with a profit of RMB 591 million in Q1 2025 and a loss of RMB 147 million in Q4 2025. The operating margin was 6.7%, a year-over-year increase of 4.2 percentage points and a sequential uptick of 7.4 percentage points.

Q1 non-GAAP income from operations totaled RMB 1.67 billion, increasing 45.1% year-over-year and 416% quarter-over-quarter. The non-GAAP operating margin was 8.8% a year-over-year increase of 3.9 percentage points, mainly due to the increase in the gross margin and a sequential increase of 7.4 percentage point mainly due to the decrease in the operating expense ratio and an increase in the gross margin. Finally, GAAP net income totaled RMB 1.26 billion in Q1 up 46.7% year-over-year and 1,425% quarter-on-quarter. Non-GAAP net income was RMB 1.61 billion, up 15.7% year-over-year and 211.5% quarter-to-quarter. In terms of the cash flow and balance sheet, we recorded a net operating cash outflow of RMB 1.5 billion in Q1. Our operating cash flow was lower than our profit and performance, mainly due to the timing factors related to the payment of accrued employee compensation from the previous year, excluding the impact of this timing factor and our operating cash flow performance was broadly in line with our profitability.

In Q1, the turnover days of accounts receivables for our new home business was 64 days, largely stable year-over-year and remaining at a healthy level. In addition, even after spending approximately USD 195 million on share repurchases during this quarter, our broader cash balances excluding customer deposits remain at approximately RMB 65.6 billion. Supported by our solid cash reserves we placed great importance on shareholder returns. In the first quarter, we spent over — around USD 200 million on share repurchases with a number of shares repurchased, representing around 1% of our total shares outstanding as of the end of 2025 since the launch of our share repurchase program in September 2022 through the end of the first quarter of 2026, we have cumulatively spent around USD 2.7 billion on share repurchases with a number of shares repurchased representing around 13.5% of the company’s total shares outstanding before the program began.

In summary, in the first quarter, we delivered on our operating commitments and achieved a meaningful enhancement in our operating capabilities through proactive cost structure optimization, technology-driven empowerment and more refined management. Looking ahead, we’ll continue to uphold the principle of maximizing the company’s overall value as our core priority. We will allocate resources around our long-term strategic decision — direction of what pursuing local optimums and shorter-term gains. At the same time, we’ll use data and business fundamentals as basis for decision-making, maintain our clear ROI discipline for key investments, direct resources to areas where we can better enhance the customer experience and service better efficiency.

Now I’ll hand over the call to our CEO.

Yongdong Peng: Well, thank you, Mr. Tao. Now I would like to welcome all of you for joining us at KE Holdings 2026 first quarter earnings call. In the first quarter, we saw an encouraging early signs across the property market. The existing home market, in particular, experienced a noticeable spring rebound after Chinese New Year with transaction momentum into deal conversion, buyer decisiveness and seller sentiment all improving in some key cities, the price expectations are moderating toward a rational level, and previously pent-up, move-up, and trade-up demand is now beginning to clear the market in an orderly manner. That said, a divergence in core cities in the market segment remains pronounced, and we are still in the phase of structural adjustment and confidence rebuilding.

We’re not reading too much into one quarter’s data nor are we disheartened by the continued volatility inherent in any cycle. More importantly, consumers are placing greater emphasis on authentic living needs, asset quality, and long-term lifestyle fit. The overall industry is now evolving towards a more stable, healthy and sustainable path. Our company’s operational quality is also on the rise despite a high base in the prior year period. Q1 GTV and revenue declined year-over-year, yet adjusted net income climbed 15.7% year-on-year. Now we have seen 3 notable improvements. First, Efficiency gains in Q1, Lianjia’s nationwide per capita transaction volume rose 26% year-on-year with per capita commission up 8.5%. From January to April, cumulative per capital commission increased 20% year-on-year, comfortably outperforming local real estate transaction market; second, no comprise on scale.

Our platform’s existing home transactions grew 12% year-on-year, Non-Lianjia’s existing home transactions rose 16% year-on-year markedly outpacing the market. In Beijing and Shanghai, where Lianjia posted the strongest per capita efficiency gains and market penetration also rebounded from the second half of the last year. Third, improved profitability. The group’s adjusted operating margin recovered to over 8.8%, up 3.9 percentage points year-on-year. while adjusted operating profit rose by approximately RMB 500 million year-on-year. These measurable Q1 improvement stem from our relentless pursuit of efficiency-driven growth. This is not merely about cutting investment controlling costs or downsizing to boost profits. It means fundamentally reevaluating which services truly solve consumer pain points in today’s market, which providers can deliver sustainable value and how our platform amplifies that value through technology, mechanisms and resource allocation.

At the end of March this year, we announced a new round of strategic and organizational restructuring. This transformation rests on one fundamental premise. The housing service industry is undergoing fundamental changes. . An industry creates value by solving for what is scarce. For years, China’s housing market was defined by rapid growth, tight supply and strong expectations of rising prices. Listings or the scarce resource, value came from controlling listing information and the path clients took to reach them. Consumers wanted to know where are the listings? what do they cost? Can I get one? And can we close fast? So the earlier brokerage industry organized naturally around listings. And for KE Holdings, we are trying to make sure that the industry’s core is now within our adjustment and [indiscernible] to be wanted matter most.

And now it is the ability to guide decision. Value creation is upgrading from organizing supply to delivering decision support and housing advisory provide services. So what consumers really need today is to make sure that they make the right decision with high ticket risks and sorted information so that they can make well-informed decisions. And for buyers, decision support means helping them understand whether where and what truly fits. And for owners, consumer questions have also changed. Their core anxiety has shifted from can I get one? am I getting it wrong? what they care about now is should I even buy right now? How do I weigh school districts against the community and living comfort? And these two units each have their strength and which one should I get?

And for buyers, decision support means helping them understand whether to buy or not, where to buy and what can truly fit. So for owners, it means helping them understand how to present value, price right, find the right buyer and increase closing certainties. AI will accelerate this shift. It will rapidly commodify and pure information sorting and shallow matchmaking while further amplifying the value of service providers who can guide decisions, it can also turn top agent expertise into platform capabilities. For us, our real-world scenarios and service network and transaction groups and continuous data feedback gives us the opportunity to combine with AI and build a deep moat. So the strategic restructuring we announced this year is neither short-term cost-cutting nor a defensive move.

It is about reorganizing production around the new scarce resource. KE Holdings is evolving from a platform that organizes transactions into one that supports higher quality housing decisions, redefining the very paradigm of value creation for this area. Here, the key is to be more professional and professionalism for us is simple. It is decision support. What exactly does it take to be more professional? 3 things. First, the key organizational change towards better professionalism is to get managers back into the front line. And we have 500 core managers and in 2,534 directors who are, in theory, our most capable, highest leverage people yet today, many spend over half of their time in meeting, pricing metrics and cranking out reports. The management system, metrics and processes we built once drove our growth and made the industry more efficient.

But any system that doesn’t center around the consumers’ real needs, risk becoming an end in itself. And that is why a critical part of this transformation is sending managers back to the front line to reunderstand consumers, reunderstand what service provider means and redefine their own professional values. . In Beijing, our Regional Director [Zhang] has done a lot what I consider truly returning to the front lines. He manages 16 commercial districts and 12 stores. Every week, he reviews listings in person. Every week, he joins online interviews, every Saturday, he holds office advertising. So every time he was involved, efficiency improves. There was an owner and an agent in deadlock over a small price gap and the deal stuck for ages. So when [Zhang] stepped in, he stopped talking about on price and started asking why are you selling, where are you heading next?

And what is this money used for? He discovered that owner didn’t need a better price. They need a trade-up plan, so we help them rethink their housing options ultimately driving both the new home purchase and the existing home sales. So he feeds store and competitive data into AI to generate diagnostic reports shifting from rating metrics to prescribing solutions. The oversight has given way to sparking specific problems and helping fix them. Next, he’s building a knowledge base across district store and individual tiers, qualifying property details, customer profiles and listing presentation playbooks. Second, service providers must become more professional. In the past, agents were essentially generalists. They took every client, handled every need and touched every stage of the deal and the model works when listings were scarce and deals move fast.

But today, AI is rapidly flattening the traditional agents edge in process, scripted talk and policy know-how. At the same time, customer needs are clearly segmented, school districts, luxury upgrades, new homes, asset dispositioning, leasing renovation, et cetera, each demands a different knowledge base and service approach and a trust building process. The true professionalism in the future will be defined by 3 things AI cannot do, understanding our clients’ real pain points and needs, efficient support, helping them think through the trade-off, this is analytical and a proposal capability and delivering reliable, accountable and recommendations. This is accountability for high-stakes decisions. So these 3 capabilities can only grow in real-world scenarios.

So to make our service providers more professional, first we need to do is to train them from testing knowledge to hands-on drills and case-based reviews, the system will also capture frontline vast practices and with AI, structure them for people to study and benchmark against. Second, judging whether service providers professional may shift from a static exam or certificate to how they serve clients over time and what clients say about them. AI can track a service provider, analyzing their service process and client feedback, making their professional capabilities visible, evaluable and able to continuously accumulate and grow. Third, the platform must turn nonstandard services into products. Much of our best service used to depend on individual know-how, but these skills are scattered, inconsistent and hard to replicate.

The platform’s job is to qualify this expertise into products, tools and processes. So every consumer gets consistently great service and every agent is properly equipped. For sellers, we’re pushing decision support further upstream to cover the entire sales cycle before listing, we help owners understand the market, comparable properties, likely buyers, and fair price ranges. So agents can craft a shopper sales plan. After listing, we feed back information that actual matters to that specific property, helping owners make informed calls on pricing pacing and strategy. And for owners with different needs, we are testing differentiated products through owner segmentation and listing tiering. For example, community open day concentrate exposure and buyer feedback.

For owners ready to sell and entering price negotiations, commit to sell uses and deposits, online bidding and system comparisons to cut down back and forth and help both sides reach agreement faster. A recent commit to sell deal illustrates this very well, an owner in Beijing in the Desheng district had a property worth over RMB 10 million. She was torn in price, but more anxious about locking in a sale before the month’s end. In the past , this meant endless showings and price ping pong and stalled deals. But commit to sell compresses everything into clear window, under the owner put down deposit, the listing got concentrated promotions and buyers bid online and everyone knew the clock was ticking. The winning buyer wasn’t even first in line, but with transparent rules and a firm deadline, she bid online in Friday evening and close at the owner’s price.

The buyer saw an opportunity, the seller got certainty, no price slashing just a product mechanism that’s matched a real seller, a real buyer and an agent who know the property and the market. For buyers, we’re also pushing services earlier. Today, clients enter a content and driven pre-decision phase long before they need an agent. They search everywhere, but credible mutual structured guidance is very scarce. So they need professional support as a reference in their decision-making. So we’re putting our frontline leaders managers, directors and district head who know the market and consumer base on the front lines of content creation and building a tiered content matrix with the platform. We’re not trying to turn them into influencers, chasing traffic, rather, this pushes them to truly present their expertise about communities listing transactions and clients already in their head.

Simultaneously, before the client reaches the agent, we are adding a more neutral decision service layer through middle office service [ roles ] combined with AI experts in legal, finance, school districts and high-end properties. We help the client conduct clarification of needs purchasing power calculation, risk disclosure, preliminary asset planning, then we match these clear, better understood needs to the most suitable service provider. Therefore, we’ll pivot to a more precise matching stage. I want to say that AI is not a single tool, but a new organizational capability. For instance, with our application building platform for frontline employees, staff simply describe their needs using natural language and AI helps generate and deploy the application.

As of the end of April, the platform has covered over 7,100 employees with more than 4,400 applications seeing actual traffic and total business surpassing RMB 4.12 million. So this is proof that tools originating from the front lines are being utilized by the business and organizational resources will traditionally flow toward real problems. Furthermore, one city is piloting a new collaboration model, business experts defined as scenarios, function staff designed the skills and the scenario engineers provide tool and API support. A 3-person squad can simultaneously advance over 20 specific scenarios. So in the past, the business proposed me then waited for the development. Now whoever best understand the scenario participated in its definition and rapid iteration.

In this way, the frontline expertise is no longer just a personal experience. It can be amplified and institutionalized by AI. Beyond property transactions, I would also like to briefly talk about home renovation and leasing. Q1 contract value and revenue declined year-over-year, primarily due to our proactive focus on specific cities in China since last year coupled with the new home market volatility that also impacts the demand. However, we are more focused on the underlying capabilities in the path to monetization or profitability. In Q1, the contribution margin of home renovation reached 36.2%, up 3.6 percentage points year-over-year, with the losses narrowing significantly. For the past year, we have done substantial fundamental work in product, modernization, digitalization of tools, supply chain centralized to procurement and other types of works.

So driving the business from being highly nonstandardized toward becoming more stable, replicable and manageable. For our leading business, units under management reached RMB 740,000 in Q1, maintaining rapid growth. The share of net method products rose quickly. The profit and margin contribution from care free rent increased from 6.7% in the same period last year to 14.8%. So how are all these are product structure, optimizations, EU management, AI empowering and organizational process restructuring. So the leasing business proves that a seemingly fragmented operational heavy business can also enhance efficiency and gradually form economies of scale through AI and process restructuring. Looking further ahead, we aim to center our efforts on communities to reconstruct long-term operational capability, Stores in the future were gradually upgrading to community housing service node.

And agents will also evolve from a single transaction roles into client managers capable of deploying platform capabilities across existing homes, new homes, leaving, renovation, design, delivery, et cetera, and et cetera. Regarding how investors can track this progress. I believe there are several metrics. First, core business efficiency and operational quality. Second, the pilot programs in community operational units and also our actions of putting managers into the front line. Number three, this is productization of buyer and seller services. Now before, the adoption of AI across the organization and also its improvement on customer experience and also our operational efficiency. Number five, the expansion from single transactions to long-term community operations and long-term value; Number six, long-term incentive direction and organizational stability.

These are not short-term commitments, but rather a framework to guide our transformation progress. These decisions cannot be accomplished or goals cannot be accomplished in a single quarter. We are planning this round of transformation across a multiyear cycle. Our principal are clear. Pilots comes first without blind expansion, we’re going to have prudent operations, ensuring core business operational quality and cash flow remains stable and continuous duration constantly optimizing service provider, division of labor, resource allocation, AI tools, seller service products, buyer decision service layers and et cetera. In conclusion, I would like to summarize Beike’s long-term value in one sentence, the industry is transitioning from finding listings to making decisions and what Beike must do is to upgrade our platform capability from organizing transaction to supporting higher quality residential decision.

The significance of Q1 results lies not only just margin improvement, but also in validating that a virtuous cycle can be formed among organizational efficiency, per capita efficiency gains, service provider structure optimization and platform growth. Going forward, we’ll continue to invest resources, mechanisms, AI and product capabilities where genuine customer value is created driving Beike to forge more stable, higher quality and more sustainable long-term value. Thank you, everyone. We will now open the floor for the QA session.

Siting Li: [Operator Instructions] First question comes from Thomas Chong from Jefferies.

Thomas Chong: We noticed that the existing home market saw a spring rally in Q1. What are the main — what were the main drivers? And how does it compare to previous year? And also, is this trend sustainable?

Unknown Executive: Thank you, Thomas, for your question. Compared with the previous rebounds, this round of recovery stands out in 3 ways. First, it’s not just a short-term volume bond driven by policy stimulus. It reflects genuine demand being released as the price correction have lowered the price barrier to homeownership. Second, it’s not just a simple case of trading price for volume; we are seeing prices stabilize at this stage. And third, it’s not only buyers coming back to the market, seller expectations and supply mix are also showing incremental improvement. So this recovery is now more resilient than we have seen in the past. Looking at the volume and price performance. First, existing home transactions on our platform grew 12% year-over-year in Q1 and in March set a new all-time monthly record up 21% year-over-year.

At the same time, core cities showed clear signs of the phased price stabilization according to Beike Research Institute, existing home prices in Tier 1 cities rose by 1.5% month-over-month in March, marking two consecutive months of sequential growth. In Beijing and Shanghai, prices increased by 3.8% and 3.3%, respectively, during the Q1. We see 3 factors driving the shift. First, it’s the policy. The government’s signal to stabilize the housing market, has been clear, measures such as tax optimization and housing provident fund adjustments have reduced transaction costs. Second, on the price side, after deep correction, the entry barrier for homebuyers has come down substantially. In March, the rental yield across the top 50 cities rose 40% — 40 basis points year-over-year to 2.8% and spread versus mortgage rates continue to narrow.

Housing is gradually regaining its appeal. Third, on the demand side of combination of policy support in the lower-price brought up by previously hesitant buyers back to the market, driving the recovery in transaction. More importantly, we’re seeing market expectation and supply-demand structure, improving on the margin. On the one hand, buyers are making decisions faster. The conversion rate from viewing to a transaction has improved. On the other hand, seller expectations are stabilizing, and pressure to cut prices has eased. Q1, the share of sellers are willing to offer sharp discount for a quick sale followed by 3 percentage points quarter-on-quarter and new listings in March were down 14% year-over-year. Looking at the transaction mix, upgraded demand remains a long-term driver in Q1, seasonal factors like residential registration and school enrollment, combined with the targeted policies favoring lower-priced homes lead to seasonal increase in the share of first-time homebuyers in Tier 1 cities.

That aside, from a long-term perspective, upgrade demand has continued to rise and now is approaching 60% making it a core driver of the market. Heading into Q2, the market transaction volume came down seasonally from its March peak but the pace of adjustment has been more moderate than the same period of last year. In April, year-over-year growth in existing home transactions on our platform expanded further to over 30% and the absolute volume hit a second highest record showing resilience. In terms of price, Beike Research Institute data shows that existing home prices in the top 50 cities, held steady month-over-month for a second consecutive month in April in top — in Tier 1 cities, prices are up 2.8% cumulatively from January through April, with Shanghai up 5.9% and Beijing up over 4%.

The trade-up chain is also recovering since April, larger size in mid- to high-priced homes have accounted for a slightly higher share of transactions in core cities, indicating a recovery in upgrade demand and providing some support to market resilience. Overall, we believe existing home transaction volumes should continue to grow year-over-year in Q2. On pricing. Core areas in Tier 1 cities have relatively solid support, but a broader nationwide stabilization will need a more month of data to confirm.

Siting Li: Next question comes from [indiscernible] at CITIC Securities.

Unknown Analyst: Congratulations on the noncyclical revenue uptick for the past quarter. Here’s my question for the management. The company is advancing its strategic transformation. We noticed that you have been highlighting a program called Commit to Sell in Beijing. Could you share an update on that progress? Are there any cases that validated the impact? And can it effectively improve the transaction efficiency?

Unknown Executive: Thank you for the question. Well, some investors may not be familiar with this product yet. [Foreign Language] or Commit to Sell is one of the products under our homeowner side of service transformation in Beijing. It is still in its early pilot stage. So it’s not a simple auction-style listing. It’s a matching tool designed to help both buyers and sellers come down on the back and forth and negotiating. The sellers set a reserve price online and buyers place bids back to buy a deposit and the system whereas matches the bids against the reserve price to close the deal. It focuses on the bidding and closing stages even when the transaction didn’t go through, the bidding results provide some incredible valuable insights that feeds the sellers into making better decisions going forward.

We have noticed that early signs are encouraging. Transaction cost cycles have been shortened. Homeowner satisfaction have been high. That said , the sample size is still quite small. So we are being prudent in how we read these early results. Before I dive any further, I’d like to bring it back and put it in the context of our broader strategic transformation, which I think will make the things clear. In today’s market listings are rising, buyers are more cautious homeowners essentially sell by playing the odds, they don’t get a clear read on the market feedback, and they don’t have many effective tools beyond cutting the price. So that’s why the core of our homeowner side of service transformation is to help sellers make better decisions throughout the selling process and improve the certainty of closing.

So namely, whether now is the right time to sell at what price and through what approach. In practice, we are not building a single product instead of we are identifying seller objectives, expectations and property characteristics and we bring our services across the entire selling life cycle, covering listing, pricing, marketing, exposure viewing, feedback and bid negotiation. So for Commit to Sell, is one of the pilot products are designed for a specific group of sellers. So these products are on a fixed line up. They are continuing — they continue to evolve based on the feedback of the seller and also market changes. The core idea is to match the right transaction path and the right service to each seller and each property rather than pushing every listing to the same playbook.

From the pilot programs that we have at hand so far, these products indeed improved the price discovery and transaction efficiency. We’re also piloting other services such as community open day events designed to concentrate buyer interest. Going forward, for each of these new products, and services will continue tracking key operating metrics, including product adoption rates, transaction efficiency and agent productivity. On the aging side, I want to make one point, especially clear. This new model definitely didn’t diminish the value of agents, it amplifies it. It elevates the agents role from passing along information and relaying offers to helping sellers assess price, identifying genuine buyers and build trust and the momentum in the negotiation process.

Every successful closing reflects the core value that a professional agent brings. Finally, I want to emphasize that this transformation is a long-term journey. Our approach is a small-scale piloting continuous integration and data-driven validation for the long run if we can keep improving the decision quality of both sellers and buyers. There’s significant room to expand the service penetration and efficiency.

Siting Li: So the next question comes from Timothy Zhao at Goldman Sachs.

Timothy Zhao: My question is about the home renovation and furnishing business. And we have seen some decline in this part of the business. Could you share with us what reasons are now driving this decline? And how do you make up the briefing tendencies in this business? And since given the current KPIs of this part of the business, what exactly are the major KPIs you’re focusing on? And what progress have been made in that regard?

Unknown Executive: Well, thank you for the question. I want to explain 3 reasons. First is our business changes. We have shut down some of our traditional business parts. That is the first reason. The second one is that we have narrowed down our — some part of our furnishing and renovation businesses in some cities. And the other one is that we have seen a declining market trend. And there are some also declines on the demand for renovation and furnishing. So about how do we read these declines? Or as you said, this year, our focus this year is not to focus on the scale and also instead, we’re focusing on optimizing the business model around healthy and sustainable profitability, personalized offerings under a long defined framework and higher quality fulfillment and delivery these are the important foundations for the next stage of growth.

We have already seen tangible improvements in delivering capabilities and profitabilities. And going forward, we’ll continue to deepen synergies with our home transaction services, improved conversion and gradually enhance revenue performance. And this year, we are focused on 3 key areas: improving product capabilities, standardization, construction fulfillment and delivery and upgrading our designed tool to improve efficiency. And on the product side, our approach is not to view customer demand as a simple trade-off between standardization and personalization instead we’re using a two dimensional product metrics to better address different customer needs. Vertically, we designed different packages based on budget level and service debt helping customers with different needs from those seeking practical solutions to those looking to upgrade living quality and horizontally we break down customer’s high-frequency lifestyle needs into modules such as style storage and soft finishing.

This allows customers to combine modules within clear product framework and get solutions that better fit their family needs. At the same time, it allows us to improve efficiency, control costs and enhance unit economics through module review and SKU concentration, design tools and standardized delivery process. In terms of construction fulfillment and delivery standardization, this year, we have extended our professionalization of project managers to the work level. For certain key types of workers, we are moving away from a relatively loose labor cooperation model to a model based on platform selection platform evaluation and platform coordination dispatch where workers with a stronger delivery performance and better customer feedback can receive more job.

At the same time, this helped us do a more stable delivery workforce, creating a positive cycle among service quality, worker income and delivery consistency. In march, among these professionalized workers and plumbing and electrical workers saw their average monthly order volume increased by over 50% compared with the average in the second half of 2025. At the same time, we continue to deepen the development of our self-developed BIM design tools. We’re promoting the full process digitalization of floor plan imports, solution design rendering, online quotation and construction joint output. This enables us to build a low data loop on the platform, which in turn supports the continuous integration of our BIM tool and help improve design productivity.

Overall, while the revenue side has been affected in the near term by adjustments and volatility in external demand transmission, we’re seeing improvements in the underlying capabilities of the business. In particular, standardization and replicability are gradually being strengthened across key areas, and we believe revenue from our home renovation furnishing business can stabilize and return to quality growth. Now the next question, please.

Unknown Analyst: Congratulations on the positive trend. It was clear year-over-year improvement in profit margins across the company’s businesses in Q1. So how does the management assess the sustainability of current margin levels and is there further room for improvement going forward?

Tao Xu: Thank you, John, for the question. Our profitability improved significantly year-on-year in Q1, and gross margin reached 24.1%, up 3.5 percentage points year-on-year and non-GAAP operating margin rate, 8.8% up 3.9 percentage points both at a 7-quarter high. This margin improvement wasn’t driven by any single business or one-off factors. It is the result of a series of proactive optimization across operating quality, resource allocation, cost structure and unit economics. Looking at each business in Q1, contribution margins improved year-over-year across all our core businesses, starting from our housing transaction business. The contribution margin improvement in existing home transactions came mainly from lower fixed labor costs and higher in the agent productivity and fixed labor costs in existing home transactions were down 24% year-on-year in Q1, which was a key driver of the margin expansion.

And this reflects the work we’ve been doing since last year on Lianjia including refining store and agent scale, optimizing organizational structure and improving resource allocation efficiency, et cetera. In the long run, further upside will come from continued gains in Lianjia store and agent productivity and resource conversion efficiency as our business and transformation we go forward. The new home business, a more refined operational management was the overall variable cost ratio down 3.7 percentage points. Going forward, we’ll innovate our sales model by providing developers with a full life cycle project solutions by leveraging our data, marketing and other capabilities and this will diversify our revenue mix and support stable profitability.

In Home Renovation and Furnishing, contribution margin improved mainly thanks to lower material costs and higher labor productivity. Since last year, we’ve been actively advancing centralized procurement alongside localized embedding. This has driven down prices on some materials by more than 20% and those cost savings continue to flow through this year. We’ve also optimized our order dispatch system routing more orders to project managers with stronger execution capabilities focused on serving platform customers and tightening their service radius to improve productivity per person. And looking ahead, as supply chain scale benefits continue to materialize and service provider productivity further improve, there’s still room to optimize the unique economics of our home renovation business.

In home rental services contribution margin improved quarter-over-quarter, mainly driven by better unit economics in our care free rental, a structural shift into our rental unit accounted under a net accounting method, which carries a higher gross margin. As of the end of March, net net method home units accounted for over 40% of our managed inventory. Meanwhile, the UE improvement came from several drivers: higher productivity, which both reduced internal costs and streamlined operational labor better supply chain pricing, which lowers the maintenance and cost ratio and some seasonal factors as well. Looking forward, with quarterly margins may fluctuate, the shift toward higher-margin revenue combined with continued improvements in our products and operations leaves room for further improvement in the unit economics and rental services.

On the expense side, total operating expenses in Q1 hit a near 3-year low, the decline across all 3 expense lines was driven by improvements organizational productivity and disciplined financial management, including refined control of marketing spend. On AI, we’re maintaining a disciplined investment approach. We continue to fill up investment in core business models and a foundational AI capabilities. While active reviewing and reallocating resources from lower ROI projects, through areas with higher long-term value creation. This lets us keep investing in long-term capabilities on a solid financial foundation supports sustainable [ function ] and continue opening up new and more efficient avenues for growth. For the whole year, our home transaction business has did a great earnings flexibility, the profitability model in our two wing businesses will continue to improve and our cost discipline remains firm.

Our quarterly margins may show some seasonal fluctuations, but we are confident in year-on-year margin improvement for the full year. Thank you.

Siting Li: So thank you, Mr. Xu. With that, we conclude our Q&A session. Thank you once again for joining today’s conference call. And should you have any further questions, please reach out to KE Holdings’ Investor Relations team via the contact details listed on our website. This brings today’s earnings call to a close. We look forward to connecting with you again next quarter. Thank you, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]

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KE HOLDINGS INC

Q1 2026

Earnings Transcript

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