{ "docId": "019dd923-622c-750b-8b97-3ced42d9dbe0", "docSlug": "b32b6e967105", "documentTitle": "KE Holdings (BEKE)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2021-12-16 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 44, "pageCount": 77, "prevPage": 43, "nextPage": 45, "slideType": "appendix_disclosure", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 8, "notes": "The slide contains a mix of investigative commentary and SEC-related disclosure text regarding accounting treatments for investments.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b97-3ced42d9dbe0/44", "deckHref": "/decks/019dd923-622c-750b-8b97-3ced42d9dbe0", "deckJsonHref": "/decks/019dd923-622c-750b-8b97-3ced42d9dbe0.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b97-3ced42d9dbe0#slide-44", "components": [ { "bbox": null, "kind": "callout", "text": "In our view, inserting a straw buyer likely enables BEKE a convenient mechanism to fake cash that is a byproduct of significantly overstating revenues.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b5-768c-bb46-962c4ce3d604", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.57 }, "kind": "disclaimer", "text": "Pursuant to ASC 825-10-15-4, the Company elected the fair value option to account for all of its investments in IFM and the loan provided to IFM's controlling shareholder above.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "26b20eb4-e6ca-4c72-b399-92d190b8e3d3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.78, "x": 0.11, "y": 0.22 }, "kind": "paragraph", "text": "In our view, inserting a straw buyer likely enables BEKE a convenient mechanism to fake cash that is a byproduct of significantly overstating revenues.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "66ccee34-f46e-48ba-b1e3-b049b9588438", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.38 }, "kind": "paragraph", "text": "We believe IFM is a good benchmark to value Zhonghuan because both are franchise operations acquired by the Company, so we can compare the relative valuation of each business with the data on transactions and stores collected from the platform.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "78b8989e-1c8c-41dd-af06-45c07565b552", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.78, "x": 0.11, "y": 0.67 }, "kind": "paragraph", "text": "The Company invested heavily to promote the Beike platform after its launch in 2018... The Company concluded the business rationale to pay the premium is to enhance and promote the Beike platform.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "913908d2-0f0c-4222-8520-34df0eebff73", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.78, "x": 0.11, "y": 0.44 }, "kind": "paragraph", "text": "Looking at BEKE platform data, we see that IFM brokerages produce significantly more new and existing home sales, have almost double the number of agents, and more than 40% more stores than Zhonghuan.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ac7775aa-db1f-4629-92cb-be1caa4f1d38", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.15 }, "kind": "paragraph", "text": "At BEKE's reported purchase price, BEKE supposedly paid RMB 504 million (to an obvious proxy) for this acquisition. Put simply, rather than buying Zhonghuan outright, BEKE routed the purchase through a highly suspect intermediary.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ad5cf7bc-5e26-4c58-8bb1-a930e8c7d7c1", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.31 }, "kind": "paragraph", "text": "BEKE valued its 37.6% equity interest in IFM and loan to IFM's controlling shareholder at a fair value of RMB 225.4 million at the end of 2019. This gave an implied valuation of RMB 599 million to IMF. Notably, BEKE subsequently wrote down RMB 317 million of the IFM investment.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f15cbe0b-abd3-44ac-87da-32d8e77d267b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.26 }, "kind": "paragraph", "text": "Additional evidence also indicates that BEKE significantly inflated the value of the acquisition. In two transactions in 2017 and 2019, BEKE acquired a partial interest in IFM, the Century 21 brand network of franchise brokerages in China.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f26228f8-199b-4388-bb47-99a106edab4c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "company called Beijing Beike Real Estate Consulting. Liu is also the ultimate owner of Beijing Fangjianghu Info Tech, which uses @lianjia.com email for corporate registration and shares the same phone number with multiple BEKE subsidiaries.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "fd2f1f21-8d7f-45a6-bdf3-3d65dd33617b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.78, "x": 0.11, "y": 0.51 }, "kind": "source-note", "text": "Footnotes 64-67 detailing SEC filings and corporate entities.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "47ac22a8-0384-4f51-8a23-8773bde36c8b", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 76, "from": 3, "beatId": "ddedf5e8-3914-43cf-aba0-b4c0cc55dd1d", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "Repeated instances of contradictions and discrepancies in BEKE’s reporting", "position": 0, "confidence": 0.9, "parentBeatName": null, "parentBeatSlug": null }, { "to": 53, "from": 6, "beatId": "d6258a57-2813-4874-af77-9bec6ca2bd69", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Appendix Methodology", "beatSlug": null, "evidence": "Detailed methodology for data collection and analysis", "position": 1, "confidence": 0.9, "parentBeatName": null, "parentBeatSlug": null }, { "to": 64, "from": 11, "beatId": "382ec6e2-a400-4ea9-8b1f-5841c2e59259", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Preempt Rebuttal", "beatSlug": null, "evidence": "Anticipating and addressing potential rebuttals to the findings", "position": 2, "confidence": 0.9, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }