Beike 1Q26 Profits Significantly Beat Expectations, Operating Efficiency Markedly Improves

Overview

Goldman Sachs released a quick commentary on Beike's 1Q26 results, noting that profits significantly exceeded expectations, primarily due to a robust improvement in operating efficiency. Although total transaction volume (GTV) and revenue declined year-over-year, both gross margin and operating margin reached new highs over the past seven quarters. The report maintains a Buy rating, believing the company is transitioning to efficiency-driven growth, with profitability expected to continue improving.

Core views

In terms of performance, 1Q26 GTV was RMB 712 billion (down 16% YoY) and revenue was RMB 18.9 billion (down 19% YoY), largely in line with Goldman Sachs' expectations; however, adjusted net profit was RMB 1.612 billion (up 16% YoY), 38% higher than Goldman Sachs' expectations and 52% higher than market consensus. Operating efficiency improved significantly, with gross margin reaching 29.9% and adjusted operating margin reaching 8.8%, both the highest levels in seven quarters. This benefited from strong execution in controlling fixed costs; internal commissions and compensation within cost of sales decreased 18% YoY, while non-GAAP operating expenses fell 21% YoY to RMB 2.9 billion. By segment, existing home transaction GTV declined 8% YoY and new home transaction GTV declined 37% YoY, but home renovation and rental services contributed record-high profit margins of 36.2% and 14.8%, respectively. In terms of capital returns, the company repurchased $195 million of stock in Q1. As of 1Q26, net cash stood at $9.3 billion, representing 45% of market capitalization, indicating ample cash flow and a willingness to return value to shareholders.

Analysis framework

The report employs a bottom-up financial analysis framework, focusing on decomposing the drivers of revenue and profit. Following the main thread of 'efficiency-driven growth,' the firm validates the effectiveness of cost control by comparing the divergence between declining GTV and rising profit margins. For valuation, it applies a method of assigning a 20x PE multiple to 2027E non-GAAP net profit, combined with the background of industry recovery to judge the scope for valuation repair.

Methodology notes

• Valuation MethodPE/PEG valuation

  PE Valuation Method

  Assigns a price-to-earnings multiple based on future earnings forecasts; this report determines the target price by applying a 20x PE multiple to 2027E non-GAAP net profit.

• Company Fundamentals and Financial Framework

  Efficiency-Driven Growth Analysis

  Against the backdrop of slowing revenue growth, focuses on analyzing the leverage effect of fixed cost control on profit margins to validate the logic of the company's transition from scale-driven growth to efficiency-driven growth.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• KE Holdings (BEKE/2423.HK)

  Covered target, Maintain Buy rating

  Strengths

  Improved operating efficiency, margin improvement, ample cash, stock buybacks

  Weaknesses

  YoY decline in GTV, pressure in the new home market

  Risks

  Industry cyclicality, intensified competition, risk of new business failure

Key data

• 1Q26 GTVRMB 712 billionDown 16% YoY
• 1Q26 RevenueRMB 18.9 billionDown 19% YoY
• 1Q26 Adjusted Net ProfitRMB 1.612 billionUp 16% YoY, beat expectations by 38%
• Gross Margin29.9%Seven-quarter high
• Adjusted Operating Margin8.8%Seven-quarter high

Impact & implications

The report expects potential upward revisions to consensus EPS, and improvements in investor sentiment and valuation multiples will drive stock price appreciation. The background includes a recovery in existing home transactions, a narrowing decline in new home sales, and the company's enhanced focus on operating efficiency to unleash profitability.

Risks

• Industry cyclical fluctuations
• Slowing brokerage penetration in China's housing market
• Intensified competition
• Commission rate pressure on existing and new homes higher than expected
• Failure of new business initiatives
• Talent retention challenges

What to watch

• Recovery status of existing home transactions
• Progress in narrowing the decline of new home sales
• Impact of continued release of operating efficiency on profitability