CMB China Real Estate Performance Stalls, Net Income Attributable to Parent Plummets 70%, How Will Zhu Wenkai Break the Deadlock?

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 company’s net profit attributable to shareholders and net profit after non-recurring gains and losses dropped by 74.65% and 93.10%, respectively.

Development business contraction, pressure on gross profit 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 attributable to shareholders “knocked down,” asset impairments swallowing 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 was drawn to 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% drop.

Main financial data and indicators. (Image/Screenshot of China Merchants Shekou announcement)

Such performance undoubtedly fell short of market expectations. During industry deep adjustment, a sharp decline in profits often indicates multiple challenges in profitability, asset quality, and operational management. The over 70% drop in net profit attributable to shareholders behind this “knockdown” results from multiple factors.

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

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

Along with revenue shrinking, gross profit margin remained low, further squeezing profit margins. In 2025, China Merchants Shekou’s gross profit margin was 13.76%, with the development segment 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 impairment provisions were the main component, amounting to about 3.269 billion yuan, accounting for over 70% of the total provisions; there were also about 755 million yuan in credit loss provisions, 222 million yuan in goodwill impairment, among others. The large-scale inventory impairment provisions 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/Screenshot of China Merchants Shekou announcement)

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

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

A typical case is the Chongqing China Merchants Yutianfu project, which saw an additional inventory impairment of 879 million yuan in 2025. 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 with a nearly 36% premium, and an inventory impairment of 76.64 million yuan was made.

Additionally, the Xiamen Bay Lake Zhenjing project also recorded an impairment of 433 million yuan in 2025. It was acquired in May 2023 during Xiamen’s first land auction of the year for 6.37 billion yuan, with a transaction floor price exceeding 50,000 yuan per square meter and 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’s inventory impairment provisions were 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 for inventory impairments annually, with a persistent legacy burden dragging down performance.

It is noteworthy that 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 this impairment provisioning, Nie Liming stated at the 2025 earnings presentation that these accounting treatments will have some short-term impact 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 future operations.

While impairing assets, aggressive land acquisitions continue, and transformation remains a challenge

However, despite the impairment provisions, China Merchants Shekou’s land acquisition pace in 2025 did not slow down, including high-priced land. The annual report shows that the company acquired 43 parcels of land in 2025, 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 over 70% premium, 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 with an over 86% premium, and a floor price of about 84,200 yuan per square meter, breaking Shenzhen’s record.

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

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

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 previous levels. The sales strategy will continue to adhere to the principles of “selling to build, selling to invest,” with prudence, avoiding blind scale pursuit, 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 comprehensive capabilities across the entire industry chain, including development, operation, and services, forming a full lifecycle industry model centered on development, asset operation, and property services. These are not isolated; they form a complete closed loop from space creation to content operation and lifestyle services. The company’s ability to provide high-quality products through space + content + services is not something that can be replicated overnight or 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 toward a comprehensive operation service provider is a common 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 revenue contribution, are not yet enough to offset the volatility of development business, and the company cannot yet fully shoulder performance. In the short term, dependence on development remains.

For Zhu Wenkai, who has been in his role for over half a year, stabilizing this 8.3 trillion yuan giant and restoring profitability is the core task and a significant challenge. One-time financial “detox” 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 key issues this new leader must face.