The proxy for physical market rebound
- Dominant player in the China real estate brokerage sector; a direct beneficiary for the upcoming physical market recovery
- Growing penetration of existing home transaction in high-tier cities further ensure its growth outlook
- Unrivalled market reach – backed by its extensive agent and store network interlinked by its Agent Cooperation Network (ACN)
- Initiate with BUY at TP of US$19/HK$52
Unrivalled market leader that will benefit first from the physical market recovery.
KE Holdings (“Beike”) is China’s largest real estate broker with 29%/10% market share in existing and new home markets in FY21. Beike is a pioneer and has initiated a wave of reforms on the sector’s infrastructure and set new service standards in China. Its unique ACN model has proven effective as seen by its solid gross transaction value (GTV) CAGR of 39% from FY17 to FY21. Leveraging on its unmatched
competitive edge, we expect Beike’s GTV growth momentum to pick up sequentially along with the ongoing recovery in the physical market, which will translate into a c.36% non-GAAP earnings CAGR from FY21 to FY24F. Beike’s share price has been weak for several months due to fluctuations in the
physical markets, offering a good entry point to ride on the likely market rebound.
Where we differ? Better position to capture physical recovery.
We expect Beike to benefit from a potential shift to second-home transactions should recent mortgage suspension event remains unsolved; the physical market is en-route for sequential recovery as developers resume project launches.
Valuation:
Our TP of US$19/HK$52 is based on 36x FY23F PE, which is equivalent to the company’s average 2-year forward PE in 2021.
Key Risks to Our View:
Unexpected COVID-19 outbreak leads to closure of its offline stores; higher-than-expected pressure on new home commission rate; more intensified competition.
