Barclays Anticipates This Chinese Property Stock Will Thrive Despite Market Decline

KE Holdings Performance Amid Market Challenges

• Strong Shareholder Returns: KE Holdings, a major player in China's real estate market, has returned more capital to shareholders than it raised from capital markets, highlighting its commitment to shareholder value. The company announced a $5 billion share buyback program, increasing from a previous $3 billion, set to run until August 2028.

• Quarterly Profit Report: In its latest earnings report, KE Holdings reported a profit of approximately $182 million for the second quarter, marking a 31% decline year-on-year. Despite this drop, Barclays analysts maintain a positive outlook, rating the stock as overweight with a price target of $25, indicating over 40% potential upside.

Market Context and Challenges

• Real Estate Market Decline: The broader Chinese real estate market continues to struggle, with a 12% decline in investment year-to-date as of July. Average property prices, even in major cities like Beijing, have significantly decreased over the past two years.

• Government Response: Chinese Premier Li Qiang has acknowledged ongoing challenges in the real estate sector, calling for increased support. However, the government's approach has been selective, focusing on specific projects rather than providing widespread assistance to developers.

KE Holdings' Business Diversification

• Growth in New Revenue Streams: KE Holdings has diversified its business since 2021, with revenue from new home transaction services increasing by 8.6% and home renovation services rising by 13% year-on-year. Additionally, revenue from home rentals surged by 78% from a low base, now contributing over 40% to the company's total revenue.

• Market Resilience: Despite the overall market downturn, KE Holdings has gained market share in both existing and new home sales over the past three years. Analysts expect that seasonal factors may lead to a recovery in home sales in September, although they caution about potential base effects from last year's stimulus-driven transactions.