KE Holdings (HKEX:2423) Q2 2026 Earnings Call

0:00 Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Second Quarter twenty twenty six Earnings Conference Call. I am Mr. Ting Li, IR Director of KE Holdings. Please note that today's call, including the management's prepared remarks and Q and A session, will all be in Chinese. Simultaneous interpretation in English will be available on a separate line for the duration of the call. Today's 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. On today's call, we have Mr.

0:45 Stanley Peng, our Co Founder, Chairman and Chief Executive Officer and Mr. Cao Xu, our Executive Director and CFO. Mr. Xu will provide an overview of our business update and financial performance. Then Mr. Keng will share more on the progress of our strategic transformation. 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 note that BEKE'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 comparable GAAP measures.

1:34 Lastly, unless otherwise stated, all figures mentioned during this call are all 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 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 aspects. For today's call, management will use the Chinese as the main language. Please note that English translation is for convenience purposes only. In case of any discrepancy, management statements in their original language will progress. With now, I will turn the call over to our CFO, mister Cao Xu.

2:23 Thank you, Sitting Hall, everyone. Welcome to our Q2 twenty twenty six earnings call. Let me begin with the key financial takeaways. Our total GDV returned to growth. Despite a modest year over year revenue decline, profits increased significantly, materially outperforming both GTV and revenue. In Q2, GTV increased 6.3% year over year, while revenue decreased to 5.7% year over year. This revenue decline stems primarily from adjustments in our home renovation and furnishing business. And revenue recognition impacts from iterative product modeling in the home rental services. Non GAAP net income grew 74.9% year over year to billion.

3:13 Non GAAP net margin reached 13%, up six percentage points year over year, a three year high. Profit improvements were driven by a healthier cost structure, strict financial discipline and a higher operating efficiency. Contribution margins across all core business lines improved year over year and quarter over quarter, driving the Group's gross margin up 6.7 percentage points year over year to 28.6%. Simultaneously, GAAP operating expenses fell 14.1% year over year. This combination of gross margin expansion and a lower operating expenses fueled our profit growth. Next, I'll review our segment financial performance. First, existing home transaction services.

4:01 Q2 scale returned to growth and profitability improved significantly. GTV reached 629,890,000,000, up 8% year over year and 17.9% quarter over quarter. Revenue was 7,020,000,000, up 4.5% year over year and 14.5% quarter over quarter. GTV outpaced revenue growth year over year, primarily because non Linjia GTV, where platform service fees are recognized on a net base account for a larger share. This quarter, non Lianjiao platform service revenue increased to 27.8% year over year and 29.8% quarter over quarter. With a stable network scale, we advanced and refined our operations to boost per store output, helping connected stores outperform the market in enhancing overall platform efficiency.

5:00 Q2 contribution margin reached 46.1%, up 6.1 percentage points year over year, driven by a lower fixed labor costs and a structural shift toward a higher margin platform service revenue. It also rose 4.8 percentage points quarter over quarter, benefiting from operating leverage amid revenue recovery and further business mix improvements. Second, the new home business. Q2 scale remained stable year over year, while profitability continued to improve. GTV reached 158,390,000,000, up 1.2% year over year and 77.1% quarter over quarter. Revenue reached 8,950,000,000, up 3.8% year over year and 75.9% quarter over quarter. Despite a pressure to market, we maintained stable scale by collaborating on high quality projects, improving customer conversion and optimizing costs.

6:10 Q2 contribution margin reached 28.8%, up 4.4 percentage points year over year, driven by cost structure optimization from refined operations. It also rose 3.1 percentage points quarter over quarter benefiting from these same factors plus operating leverage from revenue growth. Third, home renovation and furnishing. Q2 revenue was $190,000,000 down 30.1% year over year and up 36.4% quarter over quarter. The year over year decline reflects our proactive adjustments of inefficient customer acquisition channels and exits from cities with a weak unit economics. New home market pressures also dampened renovation demand.

7:01 The quarter over quarter revenue increase reflects seasonal business recovery. Q2 contribution margin was 39.6%, up 7.5 percentage points year over year and 3.4 percentage points quarter over quarter, driven by lower material costs through centralized procurement and refined cost management. Fourth, home rental services. Q2 revenue was 4,830,000,000, down 14.8% year over year and 3.6% quarter over quarter. This is stemmed from transitioning carefree rent to a lighter, lower risk product model utilizing net basis revenue recognition. While this reduces reported accounting revenue, managed rental units continued rapid growth. By end of Q2, managed units exceeded 790,000, up approximately 34% year over year, with a net base product comprising over 50.

8:04 Q2 contribution margin reached 15.3%, up 6.9 percentage points year over year. This reflects a favorable product mix shift and operating improvement from lower labor, installation and post lease costs. Quarter over quarter contribution margin rose 0.5 percentage points, driven by continued increase in net based products. With Emerging and Other businesses, Q2 revenue reached million, up 26.4% year over year and 70% quarter over quarter. Next, turning to cost of expenses and profits. Q2 store related costs were RMB $560,000,000, down 25.9 year over year and broadly stable quarter over quarter. The year over year decline reflects the Linzhou's rent cost optimization and network adjustments.

9:05 Total Q2 GAAP operating expenses were RMB 3,989,000,000, down 14.1% year over year driven by improved organizational efficiency, optimized marketing spend, and continued financial discipline. Operating expenses rose 21.3% quarter over quarter due to higher selling expenses from the home renovation seasonal recovery and the bad debt provisions in new home business. Specifically, G and A expenses were $40,000,000 down 2.1% year over year. The 18.9% quarter over quarter increase resulted from a full bad debt provision of around $280,000,000 following a prudent assessment of SINAK related receivables and collateral value.

9:55 Sales and marketing expenses were 1,400,000,000, down 26.1% year over year due to optimized sales personnel costs and refined marketing spend, but rose 29.6% quarter over quarter from seasonally higher rental home renovation selling expenses. R and D expenses were RMB550 million, down 13.4% year over year due to lower labor and technical service costs, but up 11.4% quarter over quarter due to increased technical service fees. On the bottom line, Q3 GAAP operating profit reached RMB3.026 billion, up 185.6% year on year. Non GAAP operating profit was billion, up 123.6% year on year. GAAP operating profit was 137.8% quarter over quarter with a 12.3% margin, up 8.3 percentage points year over year and 5.6 percentage points quarter over quarter. Non GAAP operating profit grew 115.7% quarter over quarter with a 14.6% margin, up 8.5 percentage points year over year and 5.8 percentage points quarter over quarter. This year on year and quarter over quarter margin expense was driven mainly by higher gross margins and lower

11:26 operating expense ratios. Q2 GAAP net income was billion, up 100.8% year over year and 109.1% quarter over quarter. And non GAAP net income was billion, up 74.9% year over year, 97.6% quarter over quarter. Finally, turning to cash flow, balance sheet and shareholder returns. Our Q2 net operating cash inflow was RMB6.61 billion net. Our new home accounts receivable turnover was around thirty nine days down, around twelve days a year reflecting effective risk management. Excluding customer deposits, our end of Q2 broad cash balance remained at around billion.

12:20 This ample liquidity strengthened our risk resilience while supporting business development and shareholder returns. In Q2, we spent around US250 million dollars on share repurchases, including our first buyback in Hong Kong market. In first half, we spend around US450 million dollars on repurchases, up around 14% year over year, representing around 2.4% of our year end 2025 outstanding shares. Since launch of this share repurchase program in September 2022 through Q2 twenty twenty six, we have repurchased around US2.99 billion dollars in shares representing around 14.8% of outstanding shares prior to the program start.

13:12 In summary, Q2 profitability improvements reflect combined cost optimizations, operating enhancements and a favorable business mix. Looking ahead, maintaining a solid balance sheet and ample liquidity will anchor our long term growth. Across all core, new and technical investments, we will enforce strict ROI and take customer value, operating efficiency and sustainable returns as our priority or key metrics. Ultimately, we will balance business development with shareholder returns to consistently create long term value. Next, I'll turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead.

13:59 Thank you, investors and analysts. Good evening. So last quarter, we discussed our shift toward a consumer centric transformation. This quarter, I will talk about how the changes translate into our operations. In Q2, I observed the two trends, our operation foundation stabilized and our organization truly mobilized. So this foundation enables the long term change. I will address five key questions. The first one, what changes as transformation enters daily operations? Second, does being consumer centric mean bypassing agents? Thirdly, as AI advances, will agents become obsolete?

14:45 Fourthly, how is AI applied in our business and what is written out? Fifthly, how will we know we are on the right track moving forward. So for the first question, what's changed as transformation enters daily operation? In this quarter, I spent a lot of time on the frontline visiting stores, properties, construction sites and discussing issues with clients, agents and store owners. That changes boil down to three areas. First, refined operation. We are shifting from the one size fits all approach to the district specific and the project specific strategies. So rather than checking a single citywide metric, we analyze specific districts or projects to tailor solutions, and what is the solution for each community.

15:39 For example, in the high end community, where clients view property across districts, our legacy geographic bound and model field. And we regrouped operational units based on actual clients viewing path, assigning project experts for professional presentations and client experts to address specific family needs. So with 600 projects driving half the city's volume, standardizing these professional judgments into a clear division of labor allow us to replicate this model. And other cities have become similar operations explorations.

16:25 Second, shift in metrics, scale and end markets share still matter. But now we focus more on consistent agent transactions, right agent efficiency and income healthy, store profitability and less stable service quality. So leasing illustrates this perfectly. In 2025, we have at most 700 agents for leasing at the peak, and that the average agent efficiency fell below two transactions. Instead of adding headcounts, we divided the city into smaller blocks, rematching properties, clients and agents based on familiarity and the capabilities. So from April to July, average agent efficiency jumped from three to 5.6 transactions and a zero transaction ratio dropped from nearly 25% to under 10%.

17:16 So I think what matters is that the effective organization matters more than mere headcount. Thirdly, mobilizes the people. Managers have left meeting rooms for the frontline. This quarter managers personally sold steel listings, revisited debt leads and accompanied agents to signing centers. And my only requirement for manager is to presence. You cannot learn to swim without getting in the water. So in short, operationalizing transformation means refined operations, shifted metrics and mobilized people. So this stems from a single approach, solving real consumer and frontline problem first, then reorganizing our people resources in the platform.

18:09 So we are moving towards changes and that they are now being seen in the operational unit. The second question is, does being consumer centric mean bypassing agents? So this assumes that if the platform moves closer to the consumer, it must take from the agent. Historically, we only split a single transaction commission, which is a zero sign game. So this is what we did in the past. But to break this equation, we must create more high value tasks, not just redivided the same money.

18:54 Consumers are changing. Good used to be a static property attributes today. I think good means of proper match. The variables determine goods expanded from one to three, the property, the family's situation, and also the service provider. So the service provider is now a vital variable, not just a conduit. So as decision become harder, tasks must be segmented. There are three reasons. First, the required knowledge. It exceeds one's personal capacity.

19:42 For example, we needed to know the properties, client circumstances, mortgage, and the renovations and the furnishing business. So this exceeds one's capacity. Second, the building expertise require mutually exclusive path. You must either deeply root yourself in one project or follow a group of clients. So you cannot do both simultaneously. So that is the second reason. The third one is the most valuable action has shifted from providing options to confidently eliminating them. I think we are not only offering more choices to the consumers, and instead, we needed to help them to filter.

20:32 However, filtering does not mean transaction. So as long as income relies solely on closings, true professionalism won't develop. I think professionalism must be financially viable. So therefore, we are on tethering gross income from closed deals, lining them entirely with the buyers or seller. This, the assisted role is the client manager. So previously platform insights stopped once a lead reached an agent. The client manager ensures continuity. AI organizes data and while human assesses the client stage and the needs, the agent receives fully profiled clients and because the client managers are not paid per transaction and that they remain purely objective.

21:42 As I have mentioned, managers are not paid per transaction. So from May to July, this role handled over 50,000 leads, achieving a 7.4% lead to showing conversion rate outperforming the broader market's 5%. So the platform's mission is evolving from splitting commission to building a structure, where every specialized skill is independently verified and compensated. ACM is shifting from a single listing workflow to a modular ecosystem, which includes consulting, showing, contracting, reporting, marketing materials, renovation, and leasing, and so on. So anyone creating incremental value is a service provider.

22:36 And this is our definition, which is expanded. So the main goal is enabling professional service providers to win in the long term. So being consumer centric means transforming the single agent into a group of independently valuable specialized roles. And now we have the help of AI, which give us more impetus. So the question, as AI advances, will agents become obsolete? So this assumes agents only sales static information easily fetched by AI. However, reshuffles value. And we are some things depreciate while others become scarce. So we should ask, what is depreciating and what is becoming more scarce?

23:34 So for the scarcer part, what kind of progress the platform and the service provider can make? So what is depreciating? Static information, bedrooms, price, and year build, and also the layout of the house. So I think this kind of information cannot support the decision making and it is very easy to get. So if we only transmit or we only transported information, we may have no more opportunities going forward. So what is scarce dynamic, deep inspiring insights, and they cannot be fabricated? For example, the reason of selling, renovation potential, or local market assessment from seasoned managers, and how is the situation in the communities by the managers, and what is the closings and how is the deal last time.

24:39 And this information lives in people's minds and that the industry lacks the pipeline to capture and reuse it. And fundamentally, AI does not bear the consequence of poor decisions and AI may not take any accountabilities. So as the cost of housing mistake rises, consumer needed to reduce uncertainty and growth. Therefore, things will happen. Firstly, the industry becomes more valuable by mitigating uncertainty. Secondly, grading value is hard, requiring deep data and the deeper surveys. The third thing is those who transform in the direction become more valuable, including platforms and managers.

25:25 So we do not need information, we're players. We need professional who dare to make judgment and take responsibility. So the previous question is about the industry and the service provider. And if we look around, and if we look inward, then it comes to the question for how is AI applied in our business and with what results? Actually, the business itself is a production function. What is our input and what is the output and there is human capital and labor capital and technology in the function. So in today's AI, we should know the situation of AI in the industry.

26:13 So is AI as sub item or a direct variables? So if it's the sub item, it is an efficiency tool, or it is if it is a direct variable, it requires a totally right. So we needed to change attitudes in the first. We now also open some of the foundational data. And we are lowering the threshold. So we are worried about whether there will be disruption. And we are thinking about how AI can be a new production factor rather than an opponent enables innovation.

27:06 So I think the consumers finally pay the value. I think the consumers need a better experience and we need to solve the problems of consumers. The second is, it changes management. In the recent two hundred years, we have improvement in the science and management, and we need quantifiable data in the management. And I think we all benefit from this methodology in KE Holdings and also Lintia. We need standard and we also need tools for the improvement. However, for the unquantifiable, they cannot be measured. This is also a big problem.

27:55 But sometimes we may only focus on the numbers. And we find that sometimes we find that the numbers are too abstract and that consumers now become the numbers and also become the number one in the standard. However, with the help of AI, AI brings the unstructured data and I think the language and the numbers are totally different information and signals. And the granularity shifts from the managing average to managing individual properties, clients and agents. Previously, we manage the average, but now we have the computing computation powers and the knowledge, and we can have the tailored solution for each individuals.

28:54 And that this further part is about AI changes the division of labor, where you talk about the segmentation of the task in the company by AI. Now we have these scenarios, which includes financial human resource products, technology, and also from the stage by stage and the computation power. But now we have AI breaking down the threshold and all of them are in the computation power of AI. And previously, so the old division finished and the new ones emerged. So in our changing new home business, we shifted a labor between humans and AI. AI helps agents compare proposals using a dynamic knowledge base, allowing agents to focus on understanding clients.

29:52 So the agents could fine tune their understanding of the client. So this produces both close deals and also reusable organizational capabilities. So these only come from the frontline. So this disruption reshapes the organization. So it concerns on four things. First is cost. AI lowers fixed costs and increases the variable costs enabling rapid iteration. So whoever iterates fast, who creates more value.

30:38 And the next is a trial and error. During the past, it takes a lot of efforts. Right now, throughout the, you know, it takes a long path to evaluate, test, validate a proposal. So the bigger the organization, I mean, the longer the chain is. So many people just hesitate. So right now, shifts innovation from heavy, slow investments into a high frequency and low cost of probability games. So this allows us to trial and test the multiple models at the same time, and we have a higher probability of winning out the game. Next is the frontline and to the middle office.

31:27 So the frontline workers are under the rugged rapidly build and test the solutions. The mid office can then scale them. Last but not least, managers. So in the past, the bigger the organization, so the lower the efficiency is right now. I actually talked to a lot of managers. They don't feel like a lot of sense of value right now. AF legends the organization is changing the role, handling the reporting, but forcing managers to stop being megaphones and start creating real business value. So they're not just simply presenting the numbers, they are actually creating real genuine value from the frontline.

32:21 Because they're in the process of creating the value last. Finally, the bottlenecks shifts to humans. Look at KE, we have a long, you know, industrial process. AI can perfect a lot of the workflows. And those that with a human intervention becomes the bottleneck. So there's this human and a human interaction that AI can have to replace. So whether we can unite people together and provide them with the training, allow them to work efficiently with AI. So one is culture, the other is evolution.

33:09 So this is essentially a change we're talking about towards the whole industry. Now back to the very first question, whether AI is a direct variable, Because it changes who we serve, our judgments, our process, and our organization. So this is a direct variable. That means we're not simply installing AI into the company. We are re growing the company with AI. So looking into the next phase, how we will know we're on the right track moving forward. Now we must separate two things where we need to place heavy bets from where we seek answers. I think there are three areas where placing heavy bets, deep service, deep data and the platform ecosystem.

33:58 As information democratic side, deep data becomes scarce and the harder the decision making becomes, and the deeper service becomes more valuable as labor specializes, a platform is needed to orchestrate it. So while we're seeking it, so that the one that we're still seeking answers, AI's final form and the ultimate structures of management and expertise remain uncertain. Directional matters require unwavering bets. So how do we capture users evolving needs? So management, of course, carries this value. So more for a logical matters require small investments, rapid testing and cutting losses early.

34:51 So why do we need to separate these things by certainty? Because again, we have already proven that directive matters requires unwavering bets, whereas the morphological matters requires more investment in rapid testing. So looking back at the two quarters, we have approved in some areas that keeping investment in areas with low marginal returns is meaningless. The purely skill driven model is dead. We should stop those meaningless investments. Most of all, we must validate four things. First, professionals facing AI, whether they can use it directly or indirectly to create a value. Do they have a new definitions for what is professionalism and whether they're committed to this concept?

35:45 And second for managers, whether they can return to the frontline and produce high quality judgment to recreate this sense of value. The third is the processes and judgments. With the deeper services is can they earn the trust from their customers? Whether they can earn a broader recognition, a better recognition or trust. Number four, organizational capabilities. Can we turn a single success into a replicable capability? So in such a discontinuous transformation, for many industries, they are pretty much faced with the same challenge. The way I see it human conviction is the leading indicator numbers are the lagging indicator.

36:34 Many of the management tend to hide their expertise within themselves. So without the open sharing, we cannot make that into replicable successful model. So our core test is whether we can consistently execute consumer centricity and enable professionalism to win. This must be embedded in our culture and workflows. So we'll measure these success across four pillars, customer service provider operations and replicability, all four master code two. So if you look at these five things, we have to redefine our playbook. Consumers are facing harder decisions to make. So that is driving deeper specialization.

37:27 So the AI is depreciating role and both into while elevating true expertise and reorganizational internal work. So our direction is certain deep service, deep data and a platform ecosystem. So Q two is not the conclusion. It is just the beginning. Thank you. I'll now turn the call to the analysts for a q and a. Thank you, Stanley. As a reminder, we only accept questions on the Chinese language line. If you would like to ask a question, please press star one. If you would like to cancel your request, please press the pound key.

38:14 For the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, you can reenter the queue. The first question comes from Timothy Zhao from Goldman Sachs. Please go ahead. Thank you management for taking my question. Congratulations on the strong Q2 results. My question is on the overall property market. It saw a diverging trend in volume and price in Q2 with some fluctuations in momentum in Q3. Given the uncertainty ahead, what controllable levers does the company have for Q3 and the full year?

39:10 Thank you, Tennessee. In the first half, the existing home market showed a structural recovery in transactions with the prices bottoming. In Q2, this recovery became more evident. Now the pace spared across cities and price segments. By city tier, transaction volumes recovered faster in tier one cities where the first half prices also showed a greater sequential resilience. In Q2, year over year growth in registered existing home transactions in tier one cities outpaced other cities. According to BEKE Research Institute, in the first half, tier one existing home prices rose cumulatively by 3.6% quarter over quarter, while national prices remain broadly stable year over year.

40:05 Prices across all tiers remain in adjustment phase. For our platform, volume for lower priced homes grow faster than mid to high priced homes. However, the transaction mix across unit sizes remain stable, indicating housing demand hasn't broadly downgraded to smaller homes. Instead, this reflects a downward shift in transaction price bands as prices adjusted. Meanwhile, higher price homes saw smaller year over year price declines, showing resilience in core upgrade oriented and high quality residences. In the new home market overall Q2 volume remained under pressure. The projects in core cities with strong product offerings showed better support.

40:56 Structurally, existing homes accounted for over 50% of the total national residential transaction area in the first half, becoming the market main thing for housing demand. Overall, we see a structural transaction recovery. While prices continue to bottom. Core cities and high quality supply are more resilient, but the market remains polarized. With more property choices, customers are deciding cautiously, valuing professional judgment and transaction certainty. They need professional decision support, not just transaction matching or facilitation. This highlights our platform's accumulated service capability.

41:43 Based on this, we will focus on three areas. First, capturing structural market opportunities to strengthen revenue resuming. We will allocate resources based on market performance across cities, customer groups, and property tax reinforcing coverage in higher tier cities. Meanwhile, centered around content driven engagement, precise matching and professional execution will help customers make better decisions and convert genuine demand into transactions. Second, we'll continue to reinforce financial discipline and flexible resource allocation.

42:34 Our leaner cost structure improves our ability to hedge against or fend off market volatility. If pressure persists, we will dynamically allocate resources prioritizing our core professional service provider network over short term profits. Even if the market improves, we will not return to extensive expansion. New investments must pass stage gated ROI and service validation before scaling, ensuring transaction translates efficiently into profit and cash flow.

43:21 Third, we'll also prioritize cash flow and a solid balance sheet. We'll strictly manage receivables and collection, control risk exposure and limit non essential investments to preserve flexibility. Therefore, our second half operations will not rely on market events. On the revenue side, better decision support will help us win more customers. On the financial side, our healthier cost structure will protect cash flow and a core capability in weak markets and release greater operating leverage while markets improve. Thank you. Thank you.

44:10 So our next question comes from Zheng Lan from UBS. Please go ahead. Thank you, mister Tao, for your answering. So my question is that in Q2, the profit outpaced revenue growth significantly. So could the management breakdown the impact of business performance, operating efficiency, expense baselines, and if there is any one off factors? And for those improvements, how sustainable are they in the long run? Thank you for your question. In Q2, the profit improvements were mainly driven by higher contribution margins across the core business and the lower operating expenses.

44:59 For the core business contribution margins, they improved year on year and quarter on quarter, driving the group's gross margin up 6.7 percentage points year on year to 28.6%. At the same time, GAAP operating expenses fell 14.1% year on year. There are three drivers. First, a lower cost and expenses baseline. Over the past five years, we optimized Lianjiao store and agent structure by spending management expense, consolidating resources and reducing low productivity investment. And this lowered the fixed labor cost and our breakeven point. So we also have a persistent baseline.

45:48 Second, the improved operating efficiency in housing transaction in new homes, generating coverage or high quality projects and improving customer conversion, enhanced transaction resilience. We also have stable monetization and a better channel efficiency drove profit growth. And for the existing homes focusing on the priority listings and refined operational support for connected stores significantly boosted connected store revenue and the profit contribution. Thirdly, improve the units, economics and the business mix in new business. So we have centralized our procurement and refined cost management, lowered the material cost ratios in home renovation.

46:35 In rental services, the contribution margin improved due to a mix shift toward a net basis revenue products alongside the January operating improvements in labor installation and post lease cost. Looking ahead to the next 0.5, under a neutral market assumption, the lower cost baseline will contribute to support profits. However, marketing channel incentives and a certain first line sales cost may fluctuate quarter on quarter due to revenue scale mix and also seasonality. We will not simply extrapolate a single quarter's profit, but focus on achieving balanced revenue and profit growth. So if the market improves, incremental revenue will release stronger operating leverage from the lower baseline creating greater profits upside. If pressure continues over healthier cost structure reduces profit sensitivity to market volatility.

47:38 And simply put, our current structure increases both upside potential and a downside protection. In the long run, this optimization builds a healthy operating foundation. This step this is step one out of one of our strategic transformation, optimizing resources to allocation for current markets. And this is how we can cope with the uncertainty. Step two is directing limited resources toward initiatives that create customer value rather than just a cutting cost. And ultimately, through work through workflows, evaluation of incentives and the platform tools, we will embed efficient resource allocation into our daily organizational capacities to support a sustainable growth.

48:36 Thank you, Mr. Tao. The next question comes from Xiaodan Zhang from CICC. Please go ahead. Good evening, Mr. Tao. Thank you for taking my question. Congratulations on your strong performance on Q2. So the question is about existing homes. In Q2, the existing home GDP increased 8% year on year with contribution margin up 6.1 percentage point. So how much of these stems from market recovery versus company operations? And what metrics demonstrates this operating alpha? Thank you. Thank you, Xiaotan. I am happy to hear your voice. In short, while the market recovery provided a foundation for transaction volume, our existing home operating offer didn't come from expanding our network or rising prices.

49:37 It came primarily from higher unit productivity within a stable network and a better conversion of platform service value into revenue. The simultaneous margin improvement confirms we didn't sacrifice profitability for growth. Specifically in Q2, the existing home transaction volume in our key cities recovered moderately with sequential price stabilization providing some external support. And we have the external support. However, the year on year average transaction price remained in adjustment, offering low price tailwind. In this backdrop, our Q2 existing home GDP grew 8% year on year and the transaction volume grew nearly 25% year on year, significantly outperforming the market. Thus, more direct offer source was higher unit productivity in our connected store network.

50:37 In Q2, the connected store transaction volume grew nearly 30% year on year, network scale didn't expand. The active stores and agents remained broadly stable year on year, but average transaction per active connected store rose 26%. This shows that our network is shifting from expansion to high quality operation. As earlier connected stores mature and the platform collaboration deepens and that network volume translates directly into higher per store output and high efficiency. The second offer was improved conversion of platform service value into revenue. Q2 nonlinjia platform service revenue grew 27.8% year on year, outpacing long lived Jia, GTV in a buyer's market, professional marketing, property presentation and transaction facilitation created clear value and are increasingly chosen by the homeowners.

51:42 SS income, the existing home contribution margin rose 6.1 percentage points year on year to 46.1%, confirming growth wasn't loss at the expense of profitability. Going ahead, we will monitor if connected store output and the platform service revenue conversion remain stable across different markets. And going forward, we will focus more on the output of the connected store and also whether the conversion remains stable across different markets to validate the sustainability of this alpha. Thank you, Mr. Tao. Our next question comes from Alvin from CLSA. Please go ahead.

52:30 So thank you for taking my question. So for the new home business, it is also amazing. So what goes to Q2 new home alpha as the operation upgrade from traditional channel collaboration to integrated marketing and the project service? What capabilities sustainably create value? And also in the process, how do you balance gross margins, collection, contribution margin, collection cycles and developers credit risk? Thank you, Albert. Good evening. So in the first half of this year, the newborn market remained under pressure.

53:19 But in Q2, there was the improvement with the year on year sales declining among top 100 developers narrowing to 9.3% demand and the new supply increasingly concentrated in core cities, high quality projects and the upgrade oriented products. So in this backdrop, our Q2 new home GDP grew by 1.2% year on year, driven mainly by improved coverage of high quality projects and higher conversion efficiency. Firstly, we identified and collaborated with high quality and the newly launched projects earlier, improving our coverage and performance in market leading projects. And secondly, we have refined needs, identification and project matching.

54:11 We effectively allocated resources to high potential projects boosting conversion rate. So for the second half of this year, we assume the market will remain in adjustment with cautious customers focusing on optimizing project mix and the conversion to improve controllable operating efficiency. In the long run, our new home business aims to solve customer housing decisions, not just extend the service chain. So in buyers market, consumer face complex choice and multiple choice and they need more than just access to the project. So I think they need to understand the project's scalability, product value and the comparisons with the nearby options and alternatives in terms of price layout and also the amenities and whether their needs can be met.

55:15 And if and we are also evolving from the transaction channel to the customer centric for cycle project services. So what we hope is that we want to be consumer centric. We want to provide full cycle services and integrating consumer insights into project research, position, and sales, and also the decision making to support the consumers. Consumer value drives this upgrade, developer value follows from us serving consumers better. So in this direction, we are also building three capacities.

56:01 Firstly, we have earlier consumer insights and matching. We're using data from existing phone transaction searches and the viewings, we understand the demand to aid a project positioning and the marketing, reducing the mismatch between developer products and actual demand. Second, we translate the product value into comparable decision metrics. We turn complex factors like location, layout, and natural light and amenities into intuitive content.

56:51 And we also have the explanation and also other services to help the decision making. For example, at Guangzhou Star River MIG levels, we have three d community presentations and the layout analysis, which help consumers intuitively understand the products, improving on-site conversion. Thirdly, we have end to end projects operating capacities based on customer feedback. Now we link customer analysis, content and channel sales for a project. And we also have the timing adjustment and resources allocation. For example, for a project in Shanghai, the developer helped to gain a local market knowledge.

57:40 We reanalyzed target consumers. We adjusted the feedback from the market and we adjusted the sales strategy and the link channel acquisition with on-site conversion boosting the sales efficiency. But I think that these capacities remain in early validation. We will tailor them per project, validating consumer value, operating results and economics before scaling. In all of those projects. And I think we need a sustainable validation and we can have better replication as we expand our services and as our services scope deepens, we will manage payment terms and the developer credit risk even more prudently, avoiding the unreasonable risks just to expand the GTV. So in the long term, the growth will be built on deeper consumer understanding and accurate matching, ultimately translating into high quality revenue, healthy profitability and strong cash collection and we can have high quality growth.

59:04 Thank you. Thank you, Mr. Xu. The last question comes from Griffin from CLSA from CITIC. My question is on home renovation and carefree. So our Q2 home renovation revenue declined faster year to year, but contribution margins improved significantly. What drove this decline? And are earlier adjustments largely complete? When will revenue recover? And how do you balance scale, contribution margins and delivery quality, carefree rent profitability or margins significantly improves?

59:55 And how do we ensure the sustainability? Thank you, Grayson for your question. The industry is undergoing a profound supply demand restructuring as property adjustments feed into renovation. New home deliveries have dropped. The companies that previously focused on new homes are flooding into the existing home market, intensifying the competition. In such an environment, navigating the cycle depends on the operating quality, product competitiveness and delivery quality, not just scale. So the Q2 revenue decline stems from two factors. First, we proactively exited inefficient cities, stores and acquisition channels over the past year.

1:00:57 Second, overall demand remains pressured due to fewer new home deliveries, which caused directly waste on the home renovation business. While competitors use price cost and high channel incentives to fight for existing home customers. So this proactive adjustment is now largely complete. We expect no further broad based contractions this year. Despite pressured revenue contribution margins improved significantly, centralized procurement and supply chain optimization meaningfully lower the material costs. Service provider productivity per store also improving year over year, and also store costs were optimized, indicating a healthier retained capacity and cost structure.

1:01:47 Regarding revenue recovery, the contract value is a leading indicator. While reported revenue lags due to construction cycles, positively from the end metrics like July showroom visits improved quarter over quarter due to restored internal cooperation and incentives, though it will take time to translate to revenue. Going forward, we will not trade profitably for scale. Long term growth relies on delivery quality via frequent inspections, and also enhance the user experience, product competitiveness, which will be achieved through tailored renovation packages, as well as an integrated showrooms at transaction centers.

1:02:47 We are pursuing quality products and healthy profitability as three pillars, a growth strategy that will drive our deep growth in revenue and profit. On carefree rent, so the units under management gradually grow steadily to less than 790,000, up 34% year over year. Revenue was around RMB4.83 billion with a 15.3% contribution margin, up 6.9 percentage point year over year. The year over year revenue decline reflects Carefree's strength iteration toward a lighter database revenue product.

1:03:32 Profitability improved due to the structural shift and general operating optimizations in labor installation and post lease costs. On top of this, whether we can sustain this profitability, I think that requires more than just acquiring more units, requires managing an asset pool with a lower churn, fewer leases and higher renewals. So this way, the costs related to labor and channel will grow slower than actual revenue. So going forward, I think we will focus on three areas. First, stabilizing the units under management portfolio to reduce the releasing channel costs.

1:04:20 As we see more units under management, more units are entering renewal, our existing homes are going for releases. We're going to take a proactive lease management and deliver quality service. This will boost renewal and also boost retention. In Q2, the owner renewal rate hit 74%, up four percentage points, And the tenant renewal rate hit 56%, up one percentage point year over year. Second, improving efficiency to lower per unit labor cost. Q2 managed units per asset manager rose 40% year over year to around 170.

1:05:06 Going forward, we will pilot separating transaction tasks such as sourcing and leaving from management tasks such as renewal and post lease to boost specialization and per personnel efficiency. AI also can come into play. We can use AI planning to manage a scale complexity by optimizing service areas and matching task scheduling, as well as many other refined operational measures. Third, improving incremental scale quality. We'll increase asset light products to withstand rental fluctuation.

1:05:55 Additionally, tailored to different cities, we're going to adopt a differentiated product solutions that will achieve healthier unit economics. Most importantly, service quality underpins all of these improvements. So whether tenants or owner decides to renew, I mean, hinges on the reputation, repurchase, and also the channel costs. So we're gonna pay special attention to reputation and lower channel costs. So we believe profitability is only sustainable when service experience renewal and efficiency forms a positive cycle. So we're solidifying this foundation to translate our scale growth directly into profit growth.

1:06:49 Thank you. Thank you, Mr. Xu. That concludes our q and a session. Thank you once again for joining us today. If you have further questions, please feel free to contact BEKE's IR team through the contact information provided on our website. Concludes today's call, and we look forward to speaking with you next time. Thank you, and goodbye.