On Friday, BofA Securities adjusted its outlook on KE Holdings (NYSE:BEKE), a leader in the Chinese home brokerage industry. The firm's analyst has lowered the stock price target for KE Holdings to $19.00 from the previous $21.00, while keeping a Neutral rating on the stock.
The adjustment comes amidst a period of structural changes in the housing market, with a noticeable shift from new home sales to existing homes, a change in bargaining power favoring buyers, and a move towards offering comprehensive home living services.
KE Holdings has demonstrated strong market leadership and balanced exposure across various sectors, including existing home sales, new home sales, home renovation, and rentals.
In support of KE Holdings' position, the company reported a 7% year-over-year growth in new home Gross Transaction Value (GTV) for 2023, outperforming the market's 6% decline. Additionally, existing home GTV saw a significant rise of 29% year-over-year, surpassing the market's 20+% decline.
Revenue from home renovation and emerging services increased rapidly, accounting for 33% of the total in the fourth quarter. The total store count for KE Holdings expanded to 43,800 by the end of 2023, and the company plans to add over 5,000 stores in 2024 to bolster its market share.
Despite the optimism for the long-term prospects of KE Holdings and potential catalysts from housing policies, BofA Securities anticipates near-term challenges. In the first two months of 2024, sales from the top 100 developers plummeted by approximately 50% year-over-year.
Although the existing home market has shown signs of recovery, sales still declined due to a high comparison base from the previous year.
Consequently, BofA Securities forecasts a weak first quarter for KE Holdings in 2024, with an expected 21% year-over-year decline in topline and an adjusted net profit decrease to RMB 1.1 billion. Still, the firm anticipates a return to year-over-year growth in revenue starting from the second quarter. The lowered price target is based on revised estimates and an EV/EBITDA valuation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.