Beike Earnings: Mixed Results With Policy Tailwind a Long-Run Positive; Shares Fairly Valued
Narrow-moat KE Holdings, or Beike, printed mixed first-quarter 2024 results. While revenue beat Refinitiv consensus on strong home renovation and rental service growth, operating profit substantially missed because of weak existing- and new-home transactions, as well as an unfavorable earnings mix shift. That said, management struck a positive tone on recent policy easing and expected a trickle-down to home demand over time. This coincides with our view that the constructive measures require longer duration to materialize on home sales. We also see more headwinds on Beike’s near-term margins given the first quarter’s drag, and we lowered our 2024 adjusted earnings per share assumption by 12%. Despite the fine-tuning, we expect Beike’s earnings to rebound in 2025 because of home demand recovery and its leadership in real estate intermediaries. Our long-term outlook is intact, and we maintain our fair value estimate at USD 15 per ADR (HKD 39 per share). We view Beike’s ADRs as fairly priced. Positively, we think the company’s enhanced capital allocation through share repurchases and dividend payout should support a high-single-digit annual return to shareholders.