Basic conclusion
Powerful online and offline integrated real estate transaction service provider. The company's main business includes three parts: stock housing business, new housing business and emerging business. The ecological core of the company is KE Holdings Inc. platform (an online and offline integrated real estate trading and service platform based on more than ten years of business experience of Lianjia, a proprietary brokerage brand) launched in 2018. It ensures the authenticity of the housing source through the real estate dictionary, promotes the cooperation between brokers through the broker cooperation network, and improves the problem of vicious competition between brokers. Since the KE Holdings Inc. platform was opened to the whole industry in 2018, the transaction volume on the platform has increased rapidly. In 2019, the total transaction value of KE Holdings Inc. platform was 2.1 trillion yuan, + 85% compared with the same period last year. In 2021, the total transaction volume of the platform has reached 3.85 trillion yuan. The company was listed on the New York Stock Exchange in August 2020 and dual major listings on the main board of the Hong Kong Stock Exchange in May 2022.
The transaction scale of the first and second-hand houses is supported, the company penetration is improved, and the future performance is sustainable. Taking into account the increasing urbanization rate, the release of rigid demand for new citizens and housing improvement demand, and the trend of miniaturization of the family structure, we expect that the scale of new home sales will still be supported in the next 10 years. According to CIC data, the transaction volume of second-hand housing in 2021 is 7 trillion yuan. In the future, with the continuous increase of housing stock and turnover rate, the transaction volume of second-hand housing in 2025 may exceed 10 trillion yuan. The penetration rate of ② continues to increase. In 2021, the penetration rates of new and second-hand housing transactions on the KE Holdings Inc. platform were 29.4% and 9.9%, an increase of 7.6 and 17.1 percentage points over 2018. We believe that the company's future performance is supported, and its revenue in 2022-24 is expected to be 72.4 billion yuan, 90.4 billion yuan and 101.4 billion yuan, with a year-on-year growth rate of-10.4%, + 25.0% and + 12.2%.
Choose home improvement as the second track to enhance the vertical operation ability through acquisition. The home decoration industry is a natural extension of the real estate transaction, and the two customer groups have a high degree of overlap. The scale of the industry is large, with a market size of 2.8 trillion yuan in 2021, and the process is complex, which is suitable for companies with successful experience of industrial Internet. As early as 2013, the company set up millimeter decoration which is engaged in decoration business. In April 2022, the company completed the acquisition of 100% equity in Shengdu Home Decoration (20 years of home improvement industry), which greatly enhanced its vertical operation ability in the home decoration industry chain.
Investment suggestion
We expect the company's Non-GAAP net profit in 2022-24 to be 1.54 billion yuan, 5.12 billion yuan and 6.24 billion yuan, with a year-on-year growth rate of-33.1%, + 23.3% and + 21.9%. Considering that real estate sales are in the stage of recovery, the company's performance is flexible and is expected to achieve high growth next year, we give the company a 2023 PE of 40.0x (based on Non-GAAP net profit), corresponding to a target price of HK $62.73 per share, equivalent to US $24.16 / ADS. Cover for the first time, giving a "buy" rating.
Risk hint
Policy risks, epidemic situation repeatedly affect the recovery of real estate sales; new track exploration is not smooth; impairment of accounts receivable