Ladies and gentlemen, thank you for standing by. And welcome to Fangdd Network Group Limited's Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the management’s prepared remarks, we will have a question-and-answer session. Please note that this event is being recorded. I'd now like to turn the conference over to your host speaker today, Ms. Linda Li, the company's Director of Capital Markets. Please go ahead, Linda.

Thank you, operator. Hello everyone. And thank you all for joining us on today's call. The company has announced its third quarter 2021 financial results today. And the earnings release is now available on our company's IR website. Today, you will hear from our co-CEO, Mr. Xi Zeng, who will start the call with an overview of the current industry dynamics and the details of our development strategies in the quarter. Afterwards, our CFO Mr. Jiaorong Pan will go over our financials before we open up the call for questions. Our management team will deliver their remarks in Chinese, and I will provide English translation. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which applies to this call. And we will be making looking forward statements. Please also note that we will discuss non-GAAP measures today, which are more to explained and reconciled to the most comparable measures reported under the generally accepted accounting principles in our earnings release and the filings with the SEC. With that, I will now turn the call over to our co-CEO, Mr. Xi Zeng. Please go ahead, sir.

Hello, everyone. And welcome to our third quarter 2021 earnings call. I would like to start the call by reviewing some of the changes and opportunities we observed in the real estate market during the quarter. First, the real estate market is rapidly cooling off and is expected to continue its downward trend in the short term. During the third quarter, impacted by the macroeconomic regulation and the tightening of small gauge loans, the real estate market is rapidly declining. According to the National Bureau of Statistics, the total volume of real estate transactions in China decreased by 14.1% year-over-year to RMB4.2 trillion in the third quarter of 2021. According to data released by the Real Estate Industry Digitization Research Institution, total transaction volume for resale property in Tier 1 cities decreased by 32% year-over-year in the third quarter of 2021. The most notable year-over-year decrease occurred in Shenzhen, which saw an 81% decline in total transaction volume for resale property during the third quarter of 2021. Market sentiment has become more bearish and developer credit risk has been reviewed by the market. In the short term, the authorities have emphasized the principle of keeping the real estate market stable and protecting the legitimate rights and interests of housing consumers while accelerating the launch of pilot property tax reform schemes. This suggests that the control and regulation measures won't be relaxed significantly. We believe that the near-term focus of the government remains on stabilizing real estate market expectations. As a result, we believe the real estate market will continue its downward trajectory as real estate developers are entering the peak season for repayment of overseas debts. Their credit risk will further intensify. Second, real estate developers are increasing investment in digital transformation despite the downward trend, and the competitive landscape continues to evolve. With the era of rational expansion driven by high leverage coming to an end, differentiation among developers continues to increase as the industry faces declining margins and increasing competition with high inventory levels. Most real estate developers have realized that refined operations and management through digitalization is a long-term solution. According to data released by TMT Post, more than 90% of the real estate developers participating in the survey increased investment in digital transformation in 2021. 26% of these developers increased their investment in digital transformation by more than 38% year-over-year. This data indicates that digital transformation remains an important area of investment for developers. However, digital transformation in the real estate industry is still at an early stage of development, and the competitive landscape is far from stable. It is limited by multiple factors such as transformation model options, the fundamental characteristics of the management, and the availability of talent. Third, under the current context of housing being for living and not for speculation, competition in the new property distribution market has intensified, driven by excessive supply. Meanwhile, we are seeing new market opportunities emerge from the real estate asset management service sector. Due to the General Office of the State Council issued the opinion accelerating the development of affordable rental housing, it is stated that idle and inefficient commercial offices, factories, warehouses, and other non-residential buildings are allowed to be converted into affordable residential housing. It also encourages large-scale residential leasing enterprises to operate and manage affordable residential housing. According to the Wind data, ROE of Asia-listed companies in China was 11.25% in 2020, marking a historical low since the financial crisis in 2018. As a result, real estate developers have an organic need for asset realization to retire funds and stabilize their ROE. In addition, buyers are becoming more demanding in terms of service quality and transaction transparency. As a result, under the current context that housing is for living, and not for speculation, more innovative services will emerge to address the evolving needs of the government, developers, and consumers. This will drive product innovation and the development of diversified services for real estate assets, professional operations with added services, and more. In a rapidly changing market environment, we continue to closely follow the evolving regulatory policies and client requirements to proactively adapt to changes in the real estate market and agent service sector, implementing a number of initiatives to adjust our strategic direction. Our initiatives include proactively reducing the distribution of new properties, enhancing risk control efforts, focusing on our SaaS business on key accounts, and establishing benchmarks while quickly exploring the real estate service business while maintaining the efficiency of our operations. We have adjusted our business skills, layout, and strategic direction to improve the robustness and clarity of our business operations. At the same time, we have continued exploring growth opportunities for the future. First, we adhere to maintaining client operations and focus on cost control in response to government regulations on data security and privacy. We migrated all our data to Huawei Cloud in the third quarter. We also conducted a comprehensive reflection on our current product based on the regulatory requirements and achieved better management of our users and agency information. For agent services on our platform, we improved operational capabilities for agents to serve the needs of focused markets and customers through several measures. On one hand, we conducted a comprehensive evaluation and optimization of our organizational and team structure. On the other hand, we enhanced cooperation and improved resource integration between different regions and areas. However, during the downward impact of the overall real estate industry, the total number of closed-loop agents on our platform was 10,600 in the third quarter. Second, in terms of new property distribution business, we proactively reduced the scale of new property distribution and enhanced our risk control. We focused on business development in key provincial capital cities such as Guangdong, Fujian, and Hefei, while trimming down our service team in non-core cities. For cooperation with developers, we also take initiatives to assess credit risks and focus on the reliable developers while ruling out higher-risk developers. During our collaboration with related developers, we evaluate their creditworthiness and establish corresponding provisions for bad debt to control credit risk. Following the conclusion of our cooperation, we implement our pre-established internal procedures to manage developers with high credit risk to mitigate the risk of default. We have developed a project evaluation index system based on multiple criteria, including developer strengths, project gross margin, receivables, commission splits, and so on. Based on the evaluation results, we selected premium projects with productivity and profitability and allocated additional resources towards human resources, capital, and technology for key projects. Due to the impact of the market downturn and our business model adjustments, the total GMV of new properties was RMB9.3 billion, and the number of new property projects served was 1,815 in the third quarter of 2021. In terms of upgrading our business model for new properties, we established business capabilities for asset management services. We gradually explore possibilities for serving multiple categories of real estate assets. We have also continued to improve our capabilities for personnel in business development, capital debt, and risk control to promote the implementation of high-quality projects. Third, for our Property SaaS Solution business, we focused on key accounts and establishing benchmarks. During the third quarter, we further developed our cooperation with relevant partners and integrated their internal sales management system with our SaaS applications. Following this system integration, we launched our Fangdd office flagship stores in our app. This store aggregates real-time information to Fangdd, promoting new sales and providing precision online marketing service, leveraging our platform's big data and analytics. At the same time, Fangdd is able to manage customers through its self-operated system, thus reducing the transition cost of cooperating with us via our SaaS solution. As of the end of the third quarter, Fangdd had launched 30 property projects using our SaaS solution digital marketing service. In addition, we added instant messaging and telephone consultation features to our SaaS system during the third quarter, enabling seamless connection between home buyers, agents, and property sales galleries. In the third quarter, our revenue from the SaaS solution business increased by 38.8%, sequentially, to RMB3.2 million. Fourth, we are quickly reacting to the rapid downturn of the property resale market in two ways. On one hand, we implemented loss control measures to substantially reduce the scale of our Yuancui business. On the other hand, we continue to execute our innovative asset service model in the resale property transaction service space through our working Tinghaozhu product. We have sustained a healthy development in this segment through accelerating property sales and optimizing our risk control model. Under the impact of the market environment, our closed-loop resale property transaction GMV was RMB5.9 billion in the third quarter. Lastly, please allow me to share an update on our current outlook and expectations. In the fourth quarter, our overall business development will continue to be based on our platform for agents. In terms of our SaaS solutions business, we will continue to deepen our cooperation with key accounts to unleash our value in digital marketing after the system integration. In terms of new property asset service, we will continue to execute strict risk control measures to manage developer credit risk for our new property distribution business. At the same time, we will continue to develop our asset service for various real estate categories. We will continue to revitalize our assets, increase the scale of the projects we serve, and drive improvement in our financial performance. In terms of resale property, we will maintain a reasonable pace of business development under the current market environment and ensure a sufficient supply of resale housing as we refine our business model to achieve steadier development. Due to the downward trend in the industry environment, we face great uncertainty in the fourth quarter's performance. As a result, we expect our revenue in the first quarter to be between RMB138 million and RMB150 million. This forecast only reflects our current preliminary view on the market and operational conditions, which are subject to change. With that, I will turn the call over to our CFO, Mr. Jiaorong Pan, to review this quarter's financial results.

Thank you, Xi. Now, I will provide a closer look at our third quarter financial results for 2021. Before I begin, please note that all numbers are in RMB terms unless otherwise noted. Revenue in the third quarter of 2021 decreased by 57.8% to RMB169.2 million from RMB401.4 million in the second quarter of 2021. The sequential decrease was mainly due to several factors. First, the continued downturn in the real estate market led to a 48.5% sequential decrease in total closed-loop GMV facilitated on our platform. Second, our strategic adjustments to our business scale in managing the downturn in the real estate transaction market. For the new property transaction service business, we strategically reduced our business scale to avoid vicious competition in the resale property transaction service business. Consequently, we reduced our NC business to avoid further losses in the third quarter. Despite the current challenges, we continue to optimize our revenue mix and prioritize the generation of revenue from value-added services and new business initiatives, including our SaaS solution for various platform participants. Revenue from the SaaS solution increased by 38.8% to RMB3.2 million in the third quarter of 2021 from RMB2.3 million in the second quarter of 2021. The increase was primarily due to an increase in the number of new property projects which provided solutions for developers. Total revenue in the third quarter of 2021 decreased by RMB51.8 million to RMB163.2 million from RMB338.9 million in the second quarter of 2021. The decrease was primarily due to the significant drop in revenue for both new property and resale property transaction services, which resulted in a decrease in commission fees payable to agents for their services rendered. Gross profit in the third quarter of 2021 decreased by 90.4% to RMB6 million from RMB52.5 million in the second quarter of 2021. Gross margin in the third quarter of 2021 decreased to 3.5% from 15.6% in the second quarter of 2021. The decline was mainly due to our strategic reduction of our Yuancui business to limit losses and our adjustments to reduce our business scale in resale property and new property transactions. Operating expenses in the third quarter of 2021, which included RMB11.7 million in share-based compensation expenses, increased by 54.3% to RMB316.4 million from RMB205.1 million in the second quarter of 2021, which included RMB11.1 million in share-based compensation expenses. Let's take a look at the breakdown of operating expenses for the third quarter of 2021. Sales and marketing expenses in the third quarter of 2021 decreased to RMB8.6 million from RMB13.1 million in the second quarter of 2021. The decrease was primarily due to optimization of compensation for the sales department by reducing spending on marketing activities related to new property transaction services, our reduction of the Yuancui business, and our increased focus on new SaaS solutions and other value-added services offered to various platform participants in the third quarter of 2021. Product development expenses in the third quarter of 2021 were RMB40.3 million compared to RMB64.5 million in the second quarter of 2021. This decrease was attributable to a decrease in personnel-related expenses following our decision to hold off further investment in research and development for Yuancui and shift our focus on research and development for our value-added services and SaaS solutions. General and administrative expenses in the third quarter of 2021 were RMB267.5 million compared to RMB127.5 million in the second quarter of 2021. This increase was mainly due to two reasons. First, there was an increase in provision for impairment on assets such as accounts receivable, which was billed from developers and other accounts receivable from project deposits, rising to RMB201.9 million in the third quarter of 2021 from RMB79.1 million in the second quarter of 2021. Second, based on our judgment regarding the continued downturn in the real estate transaction market, we reduced redundant staff to enhance our operating efficiency and optimize our staff structure, which increased the severance expenses incurred for the current quarter aimed at long-term expense savings. Net loss was RMB355 million in the third quarter of 2021, which included the impairment of accounts receivable due from developers due to tightened financial conditions, as well as the impairment of goodwill intangible assets and accounts receivable due from individual developers resulting from the company's substantial reductions in Yuancui business amid the continuous downturn of the resale property transaction market. This is compared to the net loss of RMB139 million in the second quarter of 2021. The non-GAAP net loss was RMB343.4 million in the third quarter of 2021, compared to a non-GAAP net loss of RMB127.9 million in the second quarter of 2021. Basic and diluted net loss per American Depository Share in the third quarter of 2021 was both RMB4.13. In comparison, our basic and diluted net loss attributable to ordinary shareholders per ADS in the second quarter of 2021 was both RMB1.64. Each ADS represents 25 Class A ordinary shares. As of September 30, 2021, we had cash and cash equivalents, restricted cash, and short-term investments of RMB632.9 million. Short-term bank borrowings amounted to RMB220.2 million, and unutilized bank facilities were RMB180 million. We contributed to keeping our cash flow at this level by increasing cash inflow and reducing cash outflows to improve our going concern abilities. In the third quarter of 2021, net cash used in operating activities decreased to RMB12.8 million from RMB53 million in the second quarter of 2021, which is a decrease of about RMB40.2 million. This concludes our prepared remarks for today. Operator, we are ready to take questions.

We have no further questions at this moment. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect your lines now.