KE Holdings Inc. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial amounts are in RMB unless otherwise indicated. The company operates an online and offline housing transactions and services platform in China, including existing-home and new-home brokerage, and emerging services. Financial statements are prepared under U.S. GAAP.
Financial and operating performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | RMB80.75bn | RMB70.48bn | +14.6% |
| Gross profit | RMB15.82bn | RMB16.86bn | -6.2% |
| Gross margin | 19.6% | 23.9% | -4.3 percentage points |
| Operating income (loss) | RMB(1.35)bn | RMB2.84bn | Returned to operating loss |
| Net income (loss) | RMB(0.52)bn | RMB2.78bn | Returned to net loss |
| Operating cash flow | RMB3.60bn | RMB9.36bn | -61.6% |
| Cash, cash equivalents and restricted cash, year-end | RMB26.73bn | RMB49.54bn | -46.0% |
- Revenue mix: Existing-home services generated RMB31.95bn, up 4.5%; new-home services generated RMB46.47bn, up 22.5%; emerging and other services generated RMB2.33bn, up 17.9%. New-home services represented 57.5% of revenue.
- Costs and margins: Cost of revenue rose 21.1%, faster than revenue, to RMB64.93bn. Split commissions rose 28.1% to RMB31.83bn. Contribution margin declined for existing-home services to 37.0% from 40.9%, for new-home services to 19.3% from 21.5%, and for emerging services to 79.2% from 83.9%. Contribution margin excludes certain platform, store and technology costs and is not the company’s consolidated operating margin.
- Transaction activity: Platform GTV was RMB3,853.5bn, up from RMB3,499.1bn. The company facilitated more than 4.5 million housing transactions. Existing-home GTV was RMB2,058.2bn; new-home GTV was RMB1,608.6bn.
- Cash flow and liquidity: Investing activities used RMB24.88bn, including RMB18.14bn of long-term investment purchases; financing activities used RMB1.07bn. Management reported RMB56.1bn of cash, cash equivalents, restricted cash and short-term investments at year-end and stated liquidity was sufficient for an extended period. The VIEs held 29.5% of group cash, cash equivalents and restricted cash.
- Debt and obligations: Year-end short-term borrowings were RMB260m and short-term funding debt was RMB194m; no long-term borrowings or long-term funding debt were reported. Lease liabilities totaled RMB7.06bn. Total liabilities were RMB33.26bn, including RMB28.94bn current liabilities.
- Receivables and credit: Net accounts receivable was RMB9.32bn, against gross receivables of RMB11.48bn and an allowance for credit losses of RMB2.15bn. The filing cites approximately RMB11.0bn due from real estate developers and RMB0.6bn in deposits paid to developers. New-home receivable days improved to 97 from 103.
Material changes versus the prior comparable period
- Revenue growth did not translate into higher profit: gross profit fell, operating results turned negative, and the company reported a net loss after FY2020 net income.
- Market weakness in the second half was pronounced. Fourth-quarter revenue fell 21.5% year over year to RMB17.8bn and GTV fell 34.6% to RMB732.4bn. The company reported fourth-quarter net loss of RMB933m, compared with net income of RMB1.10bn a year earlier. Third-quarter net loss was RMB1.77bn.
- Goodwill impairment rose to RMB732m, compared with RMB23m in 2020. The company also recorded RMB184m of impairment on equity investments, including RMB168m on Yuanjing Mingchuang.
- Year-end short-term investments increased to RMB29.40bn from RMB15.69bn, while cash and cash equivalents decreased to RMB20.45bn from RMB40.97bn. Long-term investments increased to RMB17.04bn from RMB3.14bn, primarily reflecting investment purchases.
- Active agents declined to more than 406,000 from more than 445,000, while active stores increased to more than 45,000 from more than 43,000.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no numerical FY2022 guidance. Management expects continued investment in technology and research and development, and expects R&D expense to increase in absolute terms. It identifies housing-market conditions, regulation, customer and agent participation, monetization and operating costs as important drivers. Management cautions that historical growth may not predict future results.
- Housing-market and policy exposure: Government measures to cool property markets, restrictions on financing and reference prices for existing homes contributed to lower transaction activity in the second half of 2021. Further policy changes could affect volumes, prices, developer demand and commission revenue.
- Developer credit risk: Developers’ financial stress could impair collection of commissions and deposits. The filing reports a significant credit-loss allowance and states that developer liquidity and collectability remain risks.
- Corporate structure and China regulatory risk: KE Holdings is a Cayman Islands holding company with no direct equity ownership in the VIEs. It relies on contractual arrangements whose enforceability has not been tested in court. PRC oversight, cybersecurity and data-privacy rules, anti-monopoly enforcement, and proposed overseas-listing filing requirements create uncertainty. The filing says the company had not received formal CSRC or CAC notice concerning offshore listing approval as of the report date.
- Audit and listing risk: The company disclosed that its auditor was not then subject to PCAOB inspection and warned of possible U.S. trading prohibition under the HFCAA. The auditor issued an unqualified opinion on the FY2021 financial statements and internal controls; management reported remediation of a previously identified material weakness and effective internal control as of December 31, 2021.
- Legal and unusual items: A U.S. securities class action filed in December 2021 was at a preliminary stage. Following a December 2021 short-seller report, the audit committee’s internal review concluded in January 2022 that the allegations were not substantiated. In July 2021 the company agreed to acquire Shengdu, a home-renovation provider; by the report date it had paid RMB3.92bn for 49% and planned to acquire the remaining 51% for 44,315,854 Class A shares, subject to conditions. The filing reports RMB1.06bn of government grants in 2021, primarily in other income.
- Dividends: The company does not expect to pay cash dividends in the foreseeable future. PRC subsidiary distributions are subject to accumulated-profit, reserve, tax and regulatory requirements.
Most important facts for investors to verify
- Whether subsequent housing-market data and policy developments support a recovery from the steep Q3 and Q4 2021 declines.
- Whether developer receivables are collected as expected and whether credit-loss provisions adequately reflect developer distress and financing-receivable delinquencies.
- Whether the RMB56.1bn reported liquidity is accessible where needed, given restrictions, VIE cash holdings and PRC limits on cross-border transfers.
- How the Shengdu acquisition was completed, the final share consideration and dilution, and whether expected operating benefits justify the investment.
- Developments in VIE enforceability, PRC cybersecurity and overseas-listing rules, and PCAOB inspection and HFCAA delisting risk.
- The outcome and potential financial exposure of the securities class action, and any material developments following the short-seller review.