Citi has initiated coverage on Beike (NYSE: BEKE), a leading real estate services company, with a Buy rating and set a price target of $23.80.
The coverage, which was previously held by Harry Chen, has now been transferred to Griffin Chan.
According to the firm, the rating and target prices are being maintained, with the target prices set at US$23.80 and HK$62.0.
The optimism from Citi stems from several factors that are expected to strengthen Beike's performance in the second half of 2024. Notably, the company has a substantial share buyback program in place, with approximately $3 billion allocated and nearly half of that amount already utilized, set to continue until August 2025.
Additionally, Beike's estimated revenues for the third quarter are projected at Rmb22.7 billion. This projection is supported by an increase in the company's market share in new home sales, which contrasts with a decline forecasted for developers.
Beike's strategy includes a focus on expanding its Liajian brand in Beijing and Shanghai, where they have increased secondary listing coverage significantly through innovative store concepts and comprehensive service offerings.
The company has also been rapidly expanding its third-party presence, opening new stores at a pace exceeding their annual target and diversifying its brand to cater to the mass market.
The company's increasing revenue from non-transactional sources is another aspect highlighted by Citi, which has seen a mix of 35% in revenues and 29% in gross profits as of the second quarter.
Beike's business synergies are further recognized through initiatives such as Beihaojia, which has made land acquisitions in Xi'an with attractive returns and service fees, indicating a shift towards an asset-light model.
KE Holdings reported a robust performance for the second quarter of 2024. Significant increases were noted in net revenue, gross margin, and both GAAP and non-GAAP net income, with the total gross transaction value rising by 7.5% year-over-year to RMB839 billion.
Net revenue climbed 19.9% to RMB23.4 billion, while GAAP net income surged 46.2% to RMB1.9 billion, and non-GAAP net income saw a 13.9% increase to RMB2.69 billion.
Morgan Stanley has adjusted its outlook on KE Holdings, reducing the price target to $19 from the previous $21, while still maintaining an Overweight rating on the stock. This adjustment follows the company's strong second-quarter performance, which was bolstered by favorable housing policies introduced and the company's consistent market share expansion.
The company's home renovation and furnishing business, as well as the rental business, experienced rapid growth. Despite a decrease in units compared to the previous year, KE Holdings improved service quality and reduced customer complaints by 20%. The operational focus on re-renting properties led to a higher turnover rate and reduced time to rent out a property for the second time.
InvestingPro Insights
Complementing the analysis by Citi, InvestingPro data highlights Beike's (NYSE:BEKE) financial position and market performance. With a market capitalization of $17.31 billion and a price-to-earnings (P/E) ratio of 28.37, Beike stands out in the Real Estate Management & Development industry. The company is trading at a low revenue valuation multiple, which could signal an attractive entry point for investors considering the stock's potential. In the last twelve months as of Q2 2024, Beike generated a revenue growth of 4.93%, reflecting a steady increase in its business activities.
InvestingPro Tips suggest that Beike's management has been aggressively buying back shares, demonstrating confidence in the company's value proposition. Furthermore, the company holds more cash than debt on its balance sheet, providing financial stability and flexibility. For investors seeking more in-depth analysis, InvestingPro offers a total of 11 tips on Beike, accessible via the dedicated InvestingPro product page.
The company's commitment to shareholder returns is evident as it does not pay a dividend, opting instead to reinvest in growth and share repurchases. As analysts predict Beike will be profitable this year and considering the company's profitable performance over the last twelve months, the stock could offer a promising opportunity for investors looking for exposure to the real estate services sector.
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