Annual Report Observation | China Merchants Shekou: Sales Ranking Rises Against the Trend, Profits Under Pressure

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On March 17, China Merchants Shekou (招商蛇口) was the first to announce its 2025 annual results during this reporting season. The key highlights are as follows:

• Contracted sales decreased by 10.6% year-on-year, industry ranking rose to fourth

• Achieved a total of 43 land parcels in the year, with new land reserves’ land price up 62.1% year-on-year, increasing inventory digestion

• Revenue and net profit both declined year-on-year, with impairment provisions and joint venture losses, net profit margin dropped to 0.45%

• The three red lines remain in the green zone, financing costs further reduced

• Asset operation income reached 7.63 billion yuan, up 2.2% year-on-year, initial signs of a second growth curve, with the fourth REIT issuance planned for 2026

In 2025, China Merchants Shekou achieved a total contracted sales area of 7.1612 million square meters, down 23.5% year-on-year; contracted sales amounted to 196.009 billion yuan, down 10.6%. The industry ranking improved by one position to fourth.

The improved ranking is driven by precise deployment focused on core cities. Among China Merchants Shekou’s 30 key cities nationwide, 15 entered the top 5 in local sales, with Shanghai, Shenzhen, Chengdu, Xi’an, Changsha, Nanjing, Zhengzhou, Suzhou, Foshan, and Nantong ranking in the top three for total sales.

Sales in Shanghai, Beijing, Hangzhou, Shenzhen, and Chengdu contributed over 60% of the company’s performance. Shanghai alone achieved a total sales volume exceeding 50 billion yuan, ranking first among Shanghai property developers.

In 2026, China Merchants Shekou is expected to have approximately 340 billion yuan of salable assets, with the “6+10” core cities accounting for 81%, and the “Strong Heart 30 Cities” accounting for 94%. The company’s total sales target for 2026 is expected to remain similar to 2025.

At the earnings conference, management stated that in 2026, the company will adhere to the principle of “sales-driven production and investment,” avoiding blind scale pursuit, but focusing on quality sales with good cash flow growth.

In 2025, China Merchants Shekou intensified its investment efforts.

The company acquired 43 land parcels totaling about 4.4 million square meters of gross floor area, with a total land price of approximately 93.8 billion yuan and equity land price of about 54.3 billion yuan, up 62.1% year-on-year.

From a deployment perspective, investments in the “Strong Heart 30 Cities” reached 100%, with nearly 90% in the 10 core cities, continuing the strategy of deepening core city layouts with high-quality land.

The company is increasing project cooperation. The proportion of equity in new land reserves decreased from 68.9% in 2024 to 57.9% in 2025, with most project partners being state-owned enterprises like China Resources, China Railway, and China Overseas.

Meanwhile, project inventory digestion has been stepped up. As of the end of 2025, the book balance of inventory was 362.324 billion yuan, down 1.9% from the beginning of the year. Completed development products accounted for 71.69 billion yuan, down 17% year-on-year.

However, some projects still face significant digestion pressure. For example, Chongqing China Merchants Yutianfu, a multi-phase development project with a total investment of 4.064 billion yuan, started construction in 2021, with an additional impairment provision of 879 million yuan in 2025. Other projects like Yancheng Yonghua Mansion and Shanghai Siping Road also have inventory impairment provisions exceeding 500 million yuan. Tianjin Jiufang City Plaza, started in 2011, has no completion plan yet, raising concerns about future digestion and further impairment risks.

In 2025, China Merchants Shekou’s operating revenue was 154.727 billion yuan, down 13.5% year-on-year. Gross profit was 21.287 billion yuan, down 18.6%. Gross profit margin was 13.76%, down 0.85 percentage points. The gross margin of development business was 15.33%, down 0.25 percentage points, with overall stability.

Net profit for 2025 was 700 million yuan, a decrease of 83.2% year-on-year; net profit margin was 0.45%, down 1.89 percentage points.

The sharp decline in net profit is mainly due to three reasons:

1. Increase in three expenses ratio, rising 1.02 percentage points to 5.52% of revenue in 2025

2. Impairment losses of 4.41 billion yuan, including 3.269 billion yuan in inventory impairment provisions

3. Losses from joint ventures, with investment income from joint ventures decreasing by 2.3 billion yuan

At the end of the period, China Merchants Shekou held 86.127 billion yuan in cash and equivalents, down 14.2% year-on-year. Total interest-bearing liabilities were 242.4 billion yuan, up 8.9%, with 56 billion yuan due within one year.

The three red lines remain in the green zone: asset-liability ratio excluding pre-received accounts at 64.17%, net debt ratio at 72.46%, and the non-restricted cash to short-term debt ratio at 1.19.

In 2025, the company raised 17.94 billion yuan through public market financing, with an annual comprehensive financing cost of 2.44%. The overall financing cost of existing debt at year-end decreased to 2.74%, a further reduction of 25 basis points from the previous year.

China Merchants Shekou stated at the earnings conference that future financing will focus on “reducing costs, matching assets and liabilities, and controlling risks.” Of particular note is “matching,” which involves optimizing the structural alignment of assets and liabilities based on asset characteristics.

Compared to development, asset operation and property services are relatively stable.

In 2025, the company’s consolidated revenue from asset operation was 23.899 billion yuan, accounting for 15.4% of total revenue, up 2.8 percentage points year-on-year, indicating the initial shape of a second growth curve. Asset operation income reached 7.63 billion yuan, up 2.2%.

The company added approximately 828,000 square meters of light-asset management area in 2025, managing projects in core cities like Shanghai, Hangzhou, Chengdu, and Shenzhen. The commercial sector, as the largest segment, had 54 projects in operation at year-end, with a total leasing area of about 3.4 million square meters, and ongoing or planned projects totaling about 1.85 million square meters. Commercial operations generated 1.96 billion yuan in revenue, with a leasing rate of 93% for projects open over three years.

Notably, some leased properties are experiencing operational pressure. The average leasing rate for commercial properties declined from 91.06% to 87.5%, and the average rent decreased to 99.53 yuan per square meter per month.

Meanwhile, China Merchants Shekou is accelerating the exit of REITs platforms. Currently, it has three REITs platforms: the domestic Shekou Industrial Park REIT, China Merchants Leasing Housing REIT, and the Hong Kong-listed China Merchants Commercial REIT, covering industrial parks, apartments, and office buildings.

At the earnings conference, management emphasized three upgrades: first, upgrading operational models; second, focusing on increasing holding returns and upgrading existing projects; third, leveraging the advantages of multiple REITs platforms.

In property services, China Merchants Property Services (招商积余) achieved revenue of 19.273 billion yuan, up 12.23%, but net profit attributable to the parent decreased by 22.12% to 655 million yuan. As of year-end, the company managed 2,473 projects with a total area of 377 million square meters.

In construction management, the company added 80 new projects in 2025, with a contracted area of 11.39 million square meters and over 800 million yuan in new contract revenue. Cumulative contracted projects exceeded 6,200, with a scale surpassing 35 million square meters.

Looking ahead to 2026, China Merchants Shekou plans to bring approximately 1 million square meters of new projects to market. The company aims to strengthen its operational capabilities through high-quality multi-asset collaboration and refined cost control, creating flagship projects and enhancing asset value. Additionally, it plans to actively promote the issuance of the fourth commercial REIT to develop exit channels for domestic consumer infrastructure and community commercial projects.

At the earnings conference, management expressed a cautious optimism: the policy bottom has been established, but the market bottom will still take time to confirm. Overall, 2026 is expected to see the market shift from stabilization to recovery, though city-level differentiation may continue. As the industry gradually recovers, the company’s future profit pressures are expected to ease.

Whether China Merchants Shekou can achieve a transition from “maintaining the basic stability” to “profit recovery” in 2026 will be a key market focus.