Provisioned over 4.2 billion, net profit down 70%, China Merchants Shekou's "Three Transformations" enter the deep water zone

(Source: Beijing Business Daily)

Affected by slowing revenue growth and large asset impairment provisions, China Merchants Shekou’s net profit attributable to shareholders in 2025 experienced a significant decline. On the evening of March 16, China Merchants Shekou released its 2025 annual report, showing a net profit attributable to shareholders of approximately 1.024 billion yuan, down 74.65% year-over-year, marking two consecutive years of decline. The sharp drop in net profit is partly due to the decline in gross profit margins of development and property services, with both core businesses seeing year-over-year decreases. More critically, China Merchants Shekou recorded asset impairment provisions totaling about 4.27 billion yuan in 2025, directly reducing net profit attributable to shareholders by nearly 3 billion yuan.

Beijing Business Daily reporters note that in recent years, China Merchants Shekou has been actively promoting its “Three Transformations” development strategy: shifting from a focus on development to a balanced approach of development and operation, moving from a heavy asset model to a combination of heavy and light assets, and transitioning from homogeneous competition to differentiated development. However, in terms of actual results, various emerging businesses under the company’s transformation are still in the cultivation stage, without yet forming scalable profit support, making it difficult to become a key driver of performance in the short term.

Net profit attributable to shareholders has declined for two consecutive years

The annual report shows that in 2025, China Merchants Shekou’s net profit attributable to shareholders was about 1.024 billion yuan, a decrease of 74.65% year-over-year. Notably, this is the second consecutive year of decline, with the downward trend becoming more pronounced.

Reviewing past data, Beijing Business Daily found that in 2024, the net profit attributable to shareholders was about 4.039 billion yuan, down 36.08% from 6.319 billion yuan in 2023. Compared to the decline in 2024, the decrease in 2025 further widened, with ongoing profit pressure.

The decline in net profit attributable to shareholders over two years is primarily driven by a slowdown in revenue from development business. In 2025, China Merchants Shekou achieved total operating revenue of approximately 154.728 billion yuan, down 13.53% year-over-year. Among them, the core development business performed particularly weakly, with revenue of about 130.829 billion yuan, a 16.33% decrease, a larger decline than overall revenue.

Regarding the decline in development business revenue, China Merchants Shekou explained that its main development activities include the development and sale of residential and other saleable products, and agency construction services. During the reporting period, the scale of development project turnovers decreased year-over-year, leading to a decline in operating revenue.

Simultaneously, the decline in gross profit margins of core businesses further increased downward pressure on net profit attributable to shareholders. As the two main pillars supporting revenue, both development and property services saw year-over-year decreases in gross profit margins in 2025.

Specifically, in 2025, the gross profit margin for development was 15.33%, down 0.25 percentage points; for property services, it was 10.59%, down 0.28 percentage points, further squeezing profit margins.

It is noteworthy that despite the downward trend in gross profit margins for development, China Merchants Shekou continued to expand land reserves nationwide in 2025, maintaining ongoing capital investment to replenish land holdings.

In 2025, the company acquired a total of 43 land parcels, with a total planned construction area of about 4.4 million square meters, and a total land price of approximately 93.8 billion yuan. The company paid about 54.3 billion yuan in land costs. During the period, nearly 90% of the company’s investments were concentrated in “core 10 cities,” with 63% in first-tier cities—an increase from the previous year. The company acquired five parcels in Shanghai, and three each in Shenzhen, Beijing, Chengdu, and Hangzhou, as well as two in Xi’an.

Yan Yuejin, Deputy Director of the E-house China Research Institute, commented that although revenue from development has declined and gross margins have fallen, land reserves serve as the “flour” for developers, indicating future growth potential and profit space. Currently, the real estate industry is undergoing deep adjustment, with the market showing a trend of “shrinking volume but improving quality” and increasing differentiation. High-quality land resources in core cities are becoming increasingly scarce. China Merchants Shekou’s countercyclical expansion of core area land reserves, leveraging state-owned enterprise capital advantages, aims to seize land opportunities during industry adjustments, focusing on high-quality land in key cities to optimize land reserve structure and lay a foundation for future recovery and profit improvement.

Regarding the significant decline in performance in 2025 and the continued high premium land acquisitions, Beijing Business Daily reporters sent interview requests to the company but had not received a response as of press time.

Over 14.4 billion yuan in inventory impairment provisions over five years

While the growth of land reserves provides room for future development, some projects have underperformed in sales, directly leading to a substantial increase in asset impairment provisions, further dragging down net profit attributable to shareholders.

The annual report shows that in 2025, China Merchants Shekou recorded asset impairment provisions totaling about 4.27 billion yuan. Among these, inventory impairment provisions accounted for the largest share at about 3.269 billion yuan; provisions for credit losses were about 755 million yuan; goodwill impairment provisions were about 222 million yuan; and long-term equity investment impairment provisions were about 24 million yuan. Due to this impairment provisioning, net profit attributable to shareholders in 2025 will decrease by approximately 2.918 billion yuan, intensifying profit pressure.

Beijing Business Daily found that among the projects involved in inventory impairment provisions, the Chongqing Merchants Yutianfu project was particularly prominent, with an additional impairment of 879 million yuan in 2025, ranking first among all projects. Public data shows that this project’s 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.

As the real estate market enters a deep adjustment cycle, the sales prices of the Chongqing Yutianfu project have further declined. Regarding the inventory impairment, China Merchants Shekou stated that the project has not yet been delivered, and a portion of inventory impairment provisions were made based on market conditions this year. The realized revenue as of December 31, 2025, did not meet the overall expected returns of the project.

Yan Yuejin noted that recording asset impairment provisions is essentially a manifestation of prudent management. Especially in a market where housing prices are in a correction cycle, companies that objectively recognize the asset pricing environment and make rational judgments about future asset values demonstrate sound corporate governance and internal control.

It is also worth noting that inventory impairment provisions are gradually becoming a “black hole” that erodes net profit attributable to shareholders. Beijing Business Daily review shows that from 2021 to 2024, China Merchants Shekou recorded inventory impairment provisions of 1.719 billion yuan, 3.641 billion yuan, 2.276 billion yuan, and 3.575 billion yuan, totaling 11.211 billion yuan over four years. Including the 3.269 billion yuan in 2025, the cumulative inventory impairment provisions have risen to 14.48 billion yuan.

Affected by these provisions, net profit attributable to shareholders from 2021 to 2024 decreased by 3.456 billion yuan, 4.558 billion yuan, 1.765 billion yuan, and 4.344 billion yuan respectively.

Yan Yuejin stated that in the short term, recording asset impairment provisions will directly reduce current profit margins; however, from a long-term perspective, this approach helps companies gain a clearer understanding of their actual asset conditions, assess asset quality accurately, and provide a solid basis for subsequent marketing and efficient asset reactivation, supporting orderly business operations.

New management team enters a strategic window

Amid ongoing pressure on revenue and net profit attributable to shareholders, the large asset impairment provisions, which seem negative on the surface, may actually present an opportunity for the newly appointed management team of China Merchants Shekou.

In September 2025, the company announced a leadership change, with Zhu Wenkai as Chairman and Nie Liming as General Manager. On March 3, 2026, Vice President Liu Ye resigned due to work transfer and took a position at China Nanshan Development (Group) Co., Ltd., where he also serves as Deputy Party Secretary.

Industry insiders suggest that facing over 14.4 billion yuan in accumulated inventory impairment provisions, the new management team may have a rare strategic window.

Yan Yuejin commented that in the short term, recording asset impairment provisions will directly compress current profit margins; but from a long-term operational perspective, this move helps companies fully and accurately understand their asset base, clarify asset quality, and lay a foundation for future strategic planning and business optimization.

Beijing Business Daily notes that China Merchants Shekou proposed its “Three Transformations” development strategy in 2021, emphasizing balanced development of development and operation, and coordinated growth of heavy and light assets. In practice, in 2025, the company’s asset operation revenue reached 7.173 billion yuan, up 0.32%; property management revenue was 16.726 billion yuan, up 8.35%. Both major sectors achieved positive growth compared to traditional development.

Yan Yuejin stated that the new management team can continue to adopt a combined light and heavy asset operation model. Although the industry generally advocates a light-asset model, heavy-asset prices have been relatively undervalued in recent years, offering phased strategic value. Its application is not limited to traditional property management. Therefore, the integrated development of light and heavy assets still offers considerable market potential and growth opportunities.

Xie Yifeng, President of the China Urban Real Estate Research Institute, pointed out that China Merchants Shekou’s active layout in the light-asset sector is based on the stability of its returns. Although the proportion of light-asset and property management income is currently low, ongoing expansion of management assets and property area is expected to steadily increase related income. From industry cycle and corporate operation perspectives, this strategy has significant resilience against downturns, effectively offsetting the decline in core real estate development profits.

Beijing Business Daily reporter: Li Han