Insight into Annual Report | China Merchants Shekou Performance Stalls, Net Profit Attributable to Parent Declines 70%, How Will Zhu Wenkai Break the Deadlock?

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Since taking over China Merchants Shekou in September 2025, Chairman Zhu Wenkai has delivered his first annual report. The financial results are not encouraging, posing a significant challenge for the new management team.

In 2025, China Merchants Shekou’s revenue declined by 13.53% year-on-year to 154.728 billion yuan. The net profit attributable to the parent and the net profit after deducting non-recurring gains and losses both plummeted by 74.65% and 93.10%, respectively.

With shrinking development business, pressure on gross profit margin, and asset impairment “eating into profits,” how will Zhu Wenkai lead this 830 billion yuan (total assets) giant out of the fog?

Net profit “knocked down,” asset impairments swallow profits

According to China Merchants Shekou’s 2025 annual report, the company achieved approximately 154.728 billion yuan in operating revenue, down 13.53% year-on-year. Market attention is on its net profit attributable to the parent, which was only about 1.024 billion yuan, a sharp drop of 74.65%. After excluding non-recurring gains and losses, the net profit attributable to the parent was only 169 million yuan, a decline of 93.10%.

Key financial data and indicators. Image / China Merchants Shekou announcement screenshot

Such performance undoubtedly falls short of market expectations. During industry deep adjustments, a significant profit decline often indicates multiple challenges in profitability, asset quality, and operational management. The over 70% drop in net profit attributable to the parent behind this “knockdown” is the result of multiple factors.

Regarding the year-on-year decline in profit indicators, China Merchants Shekou explained in its previous forecast that: the reduced scale of concentrated delivery of real estate development projects led to a decrease in operating revenue; investment income from joint ventures and gains from equity sales also decreased; some real estate projects showed signs of impairment, and the company, based on market conditions and prudent principles, made corresponding impairment provisions.

As the core ballast business, development revenue in 2025 was 130.829 billion yuan, down 16.33% year-on-year, a decline exceeding overall revenue, becoming the main drag on performance. The contraction of development business is directly due to weak sales. In 2025, signed sales area was 7.1612 million square meters, down 23.48% year-on-year.

Along with revenue contraction, gross profit margin remained low, further squeezing profit margins. In 2025, China Merchants Shekou’s gross profit margin was 13.76%, with the development business gross margin at 15.33%.

However, the largest factor eating into profits was asset impairment provisions. According to the announcement, in 2025, the company made asset impairment provisions totaling about 4.27 billion yuan, directly reducing net profit attributable to shareholders by 2.918 billion yuan.

Specifically, inventory write-downs accounted for the majority, approximately 3.269 billion yuan, over 70% of the total provisions; there were also about 755 million yuan in credit loss provisions, approximately 222 million yuan in goodwill impairments, etc. The large-scale inventory write-downs mainly targeted high-priced land parcels acquired historically, revealing hidden risks left by aggressive investments during the industry’s upward cycle.

Details of asset impairment provisions (unit: ten thousand yuan). Image / China Merchants Shekou announcement screenshot

Over 9 billion yuan of inventory write-downs over three years, former high-priced land becomes a performance burden

In fact, during the industry’s upward phase, “land king” projects acquired at high premiums have become burdens for many companies. From the project perspective, impairments directly reflect the risks of overpaying for land.

A typical case is the Chongqing China Merchants Yutianfu project, which in 2025 recorded an additional inventory impairment of 879 million yuan. This land was acquired by China Merchants Shekou in April 2021 for 3.25 billion yuan, with a premium rate close to 130%, and a transaction floor price of about 10,500 yuan per square meter. Once a “hotspot,” it had to cut prices during the market downturn.

Another example is the Guangzhou China Merchants Bay Area 1872 project, the company’s first project in Nansha District, Guangzhou. In 2021, after 110 rounds of fierce bidding, it was acquired for 4.131 billion yuan at a premium of nearly 36%, with a floor price of about 84,200 yuan per square meter. The project recorded a inventory impairment of 76.64 million yuan.

Additionally, the Xiamen Bay Lake Zhenjing project also recorded a 433 million yuan impairment in 2025. Acquired in May 2023 at a total price of 6.37 billion yuan in Xiamen’s first land auction of that year, the floor price exceeded 50,000 yuan per square meter, with a premium rate of 12.15%.

These were all key projects previously laid out by China Merchants Shekou. Looking at the timeline from 2023 to 2025, the company recorded inventory impairments of 2.276 billion yuan, 3.575 billion yuan, and 3.269 billion yuan respectively, totaling over 9 billion yuan in three years. This indicates that over the past three years, this state-owned giant has been paying the price for inventory impairments annually, with a persistent legacy dragging down performance.

It is noteworthy that in September 2025, China Merchants Shekou underwent a management change, with Zhu Wenkai promoted from General Manager to Chairman, and Nie Liming appointed as General Manager.

Regarding the impact of these provisions, Nie Liming stated at the 2025 earnings presentation that these accounting treatments will have some short-term effects on the company’s profit reports, but in the long run, they are aimed at strengthening the company’s asset quality and preparing for lighter operations in the future.

Impairments and aggressive land acquisitions—transformation still in the critical stage

However, while making impairments, China Merchants Shekou’s land acquisition pace in 2025 did not slow down, and some acquisitions involved high premiums. The annual report shows that in 2025, the company acquired 43 land parcels with a total land price of 93.8 billion yuan, nearly doubling the 48.6 billion yuan spent in 2024.

Among them, in March 2025, China Merchants Shekou acquired a land parcel in Chengdu High-tech Zone for about 2.7 billion yuan, with a premium rate of over 70%, and a floor price of 31,700 yuan per square meter, setting a new record for Chengdu. In July of the same year, in Shenzhen, the company acquired a residential land in Qianhai for 2.155 billion yuan at an over 86% premium, with a floor price of about 84,200 yuan per square meter, breaking Shenzhen’s land price record.

At the earnings conference, Nie Liming emphasized that the good projects invested in the past two or three years will gradually generate profits, helping to ease the company’s performance pressure.

In the context of industry-wide investment contraction and cautious land acquisitions by most developers, China Merchants Shekou has increased its investment efforts against the trend, aiming to optimize land reserves and prepare high-quality projects for future development. From the investment layout, nearly 90% of the newly acquired land parcels in 2025 are concentrated in core 10 cities, with 63% in first-tier cities. However, some high-premium acquisitions and record-breaking regional land prices have raised concerns about future profitability. The risk of impairment reoccurring with high-priced land remains a hidden worry over performance.

Regarding the 2026 sales plan, management stated that, based on the company’s current and planned investment intensity, overall sales are expected to remain roughly the same as last year, close to last year’s level. The sales strategy will still adhere to the principles of “selling to produce” and “selling to invest,” maintaining prudence, avoiding blind pursuit of scale, but focusing on quality and cash flow.

Zhu Wenkai said that after years of development, China Merchants Shekou is no longer just a developer. It has built a comprehensive industry chain covering development, operation, and services, forming a full lifecycle development model around development, asset operation, and property services. These are not isolated; they form a complete closed loop from space creation to content operation and living services. The company has the integrated capability to provide high-quality products through space + content + services, which did not happen overnight nor can it be easily replicated by a single track.

This statement clearly outlines the company’s transformation direction. In an industry moving away from high growth and with development business reaching a peak, shifting to a comprehensive operation service provider is almost a universal choice among leading real estate firms. However, from the current operational structure, China Merchants Shekou’s transformation is still in its early stages. Asset operation and property services, while gradually increasing their contribution to revenue, are not yet able to offset the volatility of development business, making it difficult to shoulder performance responsibilities. In the short term, dependence on development remains.

For Zhu Wenkai, who has been in the role for over half a year, stabilizing this 8.3 trillion yuan giant and repairing the profit statement are key tasks and a significant test. The one-time “detox” of financials is just the beginning. How to turn investments focused on core cities into real profits and cultivate a second growth curve beyond development are the challenges this new leader must face.

Beijing News Shell Finance Reporter Yuan Xiuli

Editor: Yang Juanjuan

Proofreader: Wu Xingfa