Insider Perspective on Annual Report | China Merchants Shekou's Performance Slows, Net Profit Attributable to Parent Drops 70%, How Will Zhu Wenkai Break the Deadlock?

AI Zhu Wenkai’s Approach to Resolving the Legacy Risks of High-Priced Land Residues at China Merchants Shekou?

Image/IC photo

Since taking over China Merchants Shekou in September 2025, Chairman Zhu Wenkai has delivered his first annual report. The financials are not encouraging, posing a significant test 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 company’s net profit attributable to shareholders and net profit after non-recurring gains and losses dropped by 74.65% and 93.10%, respectively.

With shrinking development business, compressed gross margins, and asset impairment “eating into profits,” how will Zhu Wenkai lead this 8.3 trillion yuan (total assets) giant out of the fog?

Net Profit “Knee Cut” and Asset Impairment Absorbing Profits

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

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

Such performance undoubtedly fell 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 shareholders behind this “knee cut” results from multiple factors.

Regarding the YoY profit decline, 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 revenue; investment income from joint ventures and gains from equity sales also declined YoY; some real estate projects showed signs of impairment, and the company made provisions based on market conditions and prudent principles.

As the core ballast business, development revenue in 2025 was 130.829 billion yuan, down 16.33%, a larger decline than overall revenue, becoming the main drag on performance. The contraction of development business directly stems from weak sales. In 2025, signed sales area was 7.1612 million square meters, down 23.48% YoY.

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

However, the largest factor eating into profits was asset impairment provisions. According to the announcement, provisions for asset impairment in 2025 totaled 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 total provisions; there were also about 755 million yuan in credit loss provisions, 222 million yuan in goodwill impairments, etc. The large-scale inventory write-downs mainly target 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/screenshot of China Merchants Shekou announcement

Over 9 Billion Yuan in Inventory Write-Downs Over Three Years, Once High-Price Land Becomes Performance Burden

In fact, during the industry’s upward phase, “land king” projects bought at high premiums have become burdens for many companies. From the project perspective, impairment directly points to residual risks from overpaying for land.

A typical case is the Chongqing China Merchants Yutianfu project, which in 2025 recorded a new inventory impairment provision 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 write-down provision 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 transaction floor price exceeded 50,000 yuan per square meter, with a premium rate of 12.15%.

These were key projects previously laid out by China Merchants Shekou. Looking over the past three years, from 2023 to 2025, the company’s provisions for inventory impairment were 2.276 billion yuan, 3.575 billion yuan, and 3.269 billion yuan respectively, totaling over 9 billion yuan. This means that over the past three years, this state-owned giant has been paying for inventory impairments annually, with a persistent legacy burden dragging down performance.

Notably, in September 2025, China Merchants Shekou completed 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 performance briefing that these accounting treatments would have some short-term impact on the company’s profits, but in the long run, they are aimed at strengthening the company’s asset quality and preparing for lighter future operations.

Impairment and Aggressive Land Acquisition—Transformation Still in the Critical Stage

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

Among these, in March 2025, China Merchants Shekou bought 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 record for Chengdu. In July, in Shenzhen, it acquired a residential site 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 record.

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

In the context of industry-wide investment contraction and cautious land acquisition by most developers, China Merchants Shekou is increasing its investment efforts against the trend, aiming to optimize land reserves and prepare high-quality projects for future development. Looking at the layout, nearly 90% of the newly acquired parcels in 2025 are concentrated in core 10 cities, with 63% in first-tier cities. However, some high-premium land acquisitions and record-breaking regional land prices have raised market 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 continue to adhere to the principles of “selling to produce” and “selling to invest,” with 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 but has built comprehensive capabilities across the entire industry chain, including development, operation, and services. The company is constructing an integrated development model around development, asset operation, and property services, forming a full lifecycle industry chain. These are not isolated; it’s a complete closed loop from space creation to content operation and living services. China Merchants Shekou has the ability to provide high-quality products through space + content + services, which is not something that can be quickly or easily replicated.

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 toward 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 contribute gradually more to revenue but are not yet enough to offset the volatility of development business, making it difficult to shoulder the main performance responsibility. In the short term, dependence on development remains.

For Zhu Wenkai, who has been in office for over half a year, stabilizing this 8.3 trillion yuan giant and restoring profits is the core task and a significant challenge. 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 is the key issue this new leader faces.

Beijing News Shell Finance Reporter Yuan Xiuli

Editor Yang Juanjuan

Proofreader Wu Xingfa