Profitability improvement on track

Profitability improvement on track Target PriceUS$23.00(Previous TPUS$21.80)Up/Downside36.1%Current PriceUS$16.90 Ke Holdings’ (Beike) 4Q25 revenue declined 28.7% YoY to RMB22.2bn, inlinewith Bloomberg consensus and our forecast, and non-GAAP net profit reachedRMB0.5bn in the quarter, down 61.5% YoY, ahead of our forecast at RMB0.4bn.For 2025, Beike’s total revenuegrew 1% YoY, while non-GAAP net profitwasdown 30% YoY due to industry headwinds. For 2026E, we expect the costoptimization measures for core housing transaction business, combined withprofitability improvement of new businesses to drive earnings recovery. Our2026E non-GAAP net income forecastisunchanged at RMB7.0bn, and thisimplies a 39% YoY growth. Our SOTP-based TPislifted by6% to US$23.0(wasUS$21.8) after accounting for better long-term operating cash flow outlook aidedby cost optimizationinitiatives, translating into 26.3x 2026E non-GAAP PE.Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Core housing transaction business continued to gainmarket share.For existing home transactions(EHT)/ new home transactions(NHT),Beikesaw GTVdeclineof35/42% YoY, and revenuedeclineof39%/44% YoY in4Q25. Management noted market share gainssustained for EHTbusinessin 4Q25: the number of orderson Beike platformdeclined 17% YoY, betterthan that oftheoverall market.On the emerging new businesses, homerenovation and furnishing (HR&F) /home rental services/emerging & otherservices recorded revenue of RMB3.6bn/5.4bn/459mn in 4Q25,-12%/+18%/+5% YoY, and contributed 43% of total revenue onacombined basis(4Q24: 29%). Contribution margin was31.4%/8.6% in2025 for HR&F/homerental services, up0.7ppts/3.6ppts YoY, which demonstrated operatingefficiencyimprovement. Overall operating efficiency is also onimprovementtrack for Beike: totalnon-GAAPoperating expense was RMB4.5bn in4Q25,downfrom RMB5.6bn in 4Q24.We are anticipating total non-GAAPoperating expense of RMB14.0bn for 2026E, down 14% YoY, driven byBeike’s effort to drivecontinuousoperating efficiency improvement.1Q26 outlook: industry headwinds continue to weigh on revenue Miao ZHANG(852) 3761 8910zhangmiao@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716 Stock Data growth,but profitability improvementison track.For 1Q26E, we arelooking for total revenue of RMB18.7bn, down 20% YoY, owing to continuedindustry headwindsin housing transaction industry, as well as changesinaccounting treatment of home rental services, and the initiatives to driveefficient growth of HR&F business.We estimate GTVdeclineof 10%/39%YoY for EHT/NHT in 1Q26E, butanticipatenon-GAAP operating profit ofRMB1.1bn,downmerely2% YoY, translating into 6.0% non-GAAP OPM(1Q25: 4.9%). SOTP-basedTPof US$23.0.Our TP consists of US$22.0/ADS for BeikeCore and US$1.0/ADS for Shengdu, and translates into 26.3x 2026E non-GAAP PE. Maintain BUY. Source: FactSet Industryview: sales are improving, yet full recovery remains challenging.Newhome/secondary home sales volume in 30/14 cities was at-22%/-10% YoY growth YTD asof 15 Mar, better than-29%/-23% in 4Q25. Secondary market shows stronger momentumthan new homes, as policy packages introduced at the beginning of the year haveeffectively activated liquidity in core cities. While we think the comprehensive reboundremains challenging given 1) demand continues to be dampened by income uncertainty,concerns over furtherprice declines, and delivery risks for pre-sold properties;2) on thesupply side, high unsold inventory (438 mn sqm as of end-Feb) requires a prolongeddigestion period, and the widening decline in REI reflects persistent caution amongdevelopers. For FY2026E, we forecast new home sales to decline 6% YoY to RMB 7.1tn(volume-5%, price-1%),andsecondary home sales to fall 11% YoY to RMB 6.5tn (volume+5%, price-14%). Results comparisonand changes in forecast Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect tothe securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4)