Since the end of August, many cities have implemented policies based on urban conditions, successively introducing favorable policies such as "housing recognition without loan recognition" and relaxing purchase restrictions, creating conditions for demand release. The transaction volume of the real estate market in key cities has stabilized, and the activity of the primary and secondary housing market has increased. In this market pattern, in the third quarter, Shell proposed the "One Body, Three Wings" strategy and began to move towards the goal of a one-stop new residential service platform.
On the evening of November 8th, Shell released its financial results for the third quarter of 2023. According to the financial report, the total trading volume of Shell's GTV in the third quarter was 655.2 billion yuan, a year-on-year decrease of 11.1%; Net revenue of 17.8 billion yuan, a year-on-year increase of 1.2%, exceeding the performance guidelines and going online; The net profit was 1.17 billion yuan, a year-on-year increase of 63.4%. After adjustment, the net profit was 2.159 billion yuan, a year-on-year increase of 14.4%.
From an internal perspective, we have been contemplating and laying out our long-term future this year. We call him "Crossing the Second Mountain". The fundamental reason for climbing the mountain is that people have returned from the era of focusing on "buying a house" to the issue of "living" itself. We also need to evolve from the core of "trading" to "how to make everyone live better", which is a blue ocean, At the 2023 Q3 performance briefing of Shell, Peng Yongdong, co-founder, chairman, and CEO of Shell, stated to investors.
Financial stability
From the overall perspective of the national market, due to the significant difference in market operation pace compared to previous years this year, the market showed a trend of bottoming out and consolidation in the third quarter.
Among the total transaction volume of 655.2 billion yuan in the third quarter of 2023, the GTV of the existing housing business reached 439 billion yuan, even though it only decreased by 2.2% compared to the same period last year due to the high base of first tier cities. The GTV of the existing housing business in the first three quarters increased by 28% year-on-year; The GTV of the new house was 192.1 billion yuan, with a year-on-year contraction smaller than the market contraction. The GTV of the first three quarters of the new house increased by 13% year-on-year. In addition, in Shell's own new home business, the proportion of commission income from state-owned enterprise developers has remained stable at 46%, and the proportion of "fast commission" projects prepaid by developers has also remained high at 54%.
In the overall shrinking market trading environment, the GTV achieved by Shell is higher than the previously expected performance guidance. There are three main reasons behind this. Firstly, Shell's self operated brokerage brands are mostly located in high-energy cities, which can quickly seize the incremental home purchase demand released by the New Deal and help them stabilize the basic market in traditional main businesses. Secondly, in ACN (Broker Cooperation Network) On the basis of this, Shell continues to link high-quality production capacity in the industry; Thirdly, the strong linkage between existing housing and new housing business can be achieved, better providing residential services for the customer group who needs to change houses An industry insider told a reporter from Securities Daily.
More importantly, in the uncertain internal and external environment of the overall market, the adequacy of cash flow is crucial for the survival and development of enterprises. As of the end of the third quarter of 2023, the net operating cash flow of Shell was 9.39 billion yuan, a year-on-year increase of 61%.
Shell's cash flow is healthy and stable, actively implementing repurchase plans. "Guojin Securities stated in a research report that from September 2022 to September 2023, Shell had repurchased a total of 735.5 million US dollars (up to 2 billion US dollars as of August 31, 2024).
Capability iteration in the home decoration and home furnishing sector
In addition to repurchasing shares, stable financial performance also provides "energy" for Shell to climb the second mountain. Currently, the real estate industry has entered a new stage of supply and demand for new housing transactions, with industry growth slowing down and the market entering an era of stock. For residential service platforms, the current basic focus is on traditional business, but the future blue ocean track is to refine existing business and extend the residential value chain.
It can be seen from the importance that Shell has attached to the home decoration and innovation business in the past two years. At the end of 2021, Shell announced the upgrade of its "One Body, Two Wings" strategy, with one "wing" being the fully equipped home furnishings, which is seen as the second growth curve. Peng Yongdong described it as "crossing the second mountain". At that time, two major brands helped him climb the mountain: one was the internally launched Bedding Home Decoration (formerly known as Wanlian), and the other was the acquisition of Shengdu Home Decoration.
After two years of operation and development, the home decoration and home furnishing sector has entered a stable harvest period. In the third quarter of 2023, the revenue of Shell's non real estate transaction services, including home decoration and leasing, increased by 112% year-on-year, accounting for over 30% of the total revenue, compared to 15% in the same period last year. During the same period, the net revenue of the three major sectors of existing housing, new housing, and other tracks was 6.3 billion yuan, 5.9 billion yuan, and 5.6 billion yuan, respectively.
In terms of home decoration and home furnishing business, due to its independence from real estate trading services, Shell's contract amount in the third quarter was 3.3 billion yuan, a year-on-year increase of 65.6%, and net revenue increased by 72.1% to 3.2 billion yuan, a year-on-year increase of 21%, contributing a profit margin of 29.1%. In the third quarter of this year, the Shell Home Furnishing and Home Furnishing business had two months of revenue exceeding 100 million yuan in Shanghai, becoming the third city with a single month revenue exceeding 100 million yuan after Beijing and Hangzhou. The related revenue growth rate in cities such as Wuhan, Chengdu, and Guangzhou in the third quarter also reached over 50% month on month.
Overall, while the traditional main business has been affected by the downturn in the real estate industry, the new business mainly focused on home decoration and home furnishing has grown rapidly, becoming a new growth pole for the company's performance and bringing considerable incremental profits with high certainty.
From the perspective of the industry, Shell's new home decoration and home furnishing business can achieve rapid development. Firstly, it can enter the market through self operation mode and mergers and acquisitions, and quickly establish a foothold in cities with strong demand for house changes; Secondly, thanks to the collaboration with the real estate trading business, it can help expand its business. Currently, 45% of its home decoration contracts come from the diversion of real estate transactions; The third is to leverage the advantages of supply chain integration and cost advantages, and once the model is implemented, it can quickly replicate and expand in other key cities.
The home decoration market is a small and fragmented industry that is difficult to emerge as a leading enterprise. Given its non-standard, labor-intensive, overly reliant on teams, and low threshold characteristics, its business model and profit model are very transparent. "Yan Yuejin, research director of E-House Research Institute, told Securities Daily reporters, but relatively speaking, the home decoration industry also has many pain points. In view of this, in order for home decoration brands to return to being "human", they need to operate products and users, and provide good "services" in order to become bigger and stronger.