"Trading profit for scale," gaining insights into the dormancy and outbreak of Beijing Roborock Technology (688169.SH)

As humanoid Siasun Robot & Automation ushered in the "first year of mass production" and continued to develop rapidly, the sweeping robot Siasun Robot & Automation, as a segment of the industry that has been a leader in competition in the Siasun Robot & Automation industry for the past 10 years, has entered the next competitive stage. On one hand, major manufacturers are still battling in this "red ocean", but the low market penetration rate and relatively high gross profit margin mean that the industry is still a tempting "blue ocean"; on the other hand, the narrowing gap in core technologies such as laser radar and AI obstacle avoidance, the declining premium pricing ability of high-end products, the industry is transitioning from "technology-driven growth" to "channel + brand-driven." It can be seen that the sweeping robot industry has entered a mature period, and the competition is no longer about who can run faster. In this context, "the world's number one sweeping robot manufacturer" Beijing Roborock Technology (688169.SH) has proactively adjusted its strategy and embarked on a strategic upgrade of "scaling for profit". On August 15, the semi-annual report released by Beijing Roborock Technology showed that in the first half of the year, the company achieved revenue of 7.903 billion yuan, an increase of 78.96% compared to the same period last year. At the same time, the company's net profit attributable to shareholders was 678 million yuan, a year-on-year decrease of 39.55%, marking four consecutive quarters of increased revenue without increased profits. Behind this is undoubtedly Beijing Roborock Technology's strategy as a top player in the industry, known as the "ultimate thinking route" - that is, "to scale with today's profits, in order to use scale to create profits tomorrow." When an industry enters a mature period, the competition is not only about technological capability, but also about multi-dimensional competition such as channel, supply chain efficiency, and technological differences. Beijing Roborock Technology's strategic adjustment of "scaling for profit" is not a passive defense, but a proactive choice to leverage financial leverage to enhance industry dominance. Restructuring channel strength with "profits" According to the financial report, Beijing Roborock Technology's increased revenue but decreased profits in the first half of the year was mainly due to the company's further expansion into domestic and international markets, improvement of product offerings, increased research and development investment, leading to higher sales and research expenses. During the reporting period, the company's sales expenses were approximately 2.165 billion yuan, an increase of 144.63% year-on-year, more than doubling from the 885 million yuan in the same period last year. From the above data, it can be seen that Beijing Roborock Technology's significant investment in sales expenses is impressive, and this also demonstrates the company's determination to build global channels and enhance its supply chain efficiency. After all, the channel is the "blood vessel" and scale is the "blood". Without investing in the expansion of these blood vessels, even the best products cannot reach the end-users. According to reports, Beijing Roborock Technology's global channel deepening refers to the combination of online and offline strategies in core markets such as North America, Europe, and Asia-Pacific. In Europe and Asia-Pacific, Beijing Roborock Technology uses a "online + offline" dual-drive strategy - online through platforms like Amazon and independent sites (such as the US official website) to enhance brand exposure; offline by collaborating with large retailers and opening brand experience stores to create a "online purchase, offline experience" loop. In the domestic market, the company implements an all-retail channel layout, continues to expand the offline market, and as of the first half of 2025, the national store coverage has exceeded 300, effectively enhancing user stickiness and product perception. In addition, the company also adjusts its channel structure according to local conditions. For example, in the European market, since the second half of 2023, Beijing Roborock Technology has been promoting a "dealing dealer" model, moving away from a reliance on local distributors for offline channels and transitioning to a direct sales model. In the North American market, the company relies on Amazon online and reaches consumers offline through large retailers like Target and Best Buy. In terms of supply chain, the company adopts a strategy of local operations and supply chain coordination, with the construction of a self-built factory in Huizhou (starting production in 2023) and a factory in Vietnam (starting production in 2024) to shorten delivery cycles, reduce tariff costs, and further enhance channel competitiveness. Indeed, numbers are the best touchstone. For example, the direct sales model enables Beijing Roborock Technology to achieve synchronous global product launches, greatly improving operational efficiency. After the increase in direct sales in Europe, the European market quickly recovered in the fourth quarter of 2024 and the first quarter of 2025, confirming the effectiveness of the new model. It is clear that although channel transformation has brought short-term financial pressure to Beijing Roborock Technology, long-term strategic value far outweighs the short-term pain. By enhancing channel control through direct sales, expanding into high-end markets, and optimizing global resource allocation, the company's focus is not only on the short-term market share battle, but also on laying the groundwork for long-term technological premium and brand value enhancement. Deepening technological moats with "profits" For a technology-oriented company's long-term development, true strategic fortitude is: tolerating a shrinking profit margin but not shrinking research and development investment. Therefore, in the strategic adjustment of Beijing Roborock Technology, the company not only sacrifices profits to build channel strength but also continues to increase research and development investment to deepen technological moats. In terms of the direction of technology investment, Beijing Roborock Technology's strategy of "scaling with profits to deepen technological moats" is mainly reflected in two dimensions. First is breakthroughs in core technology areas. In recent years, with competitors such as Ecovacs Robotics and Chaseway increasing the speed of algorithm iteration, the gap in core technologies such as laser radar and AI obstacle avoidance is narrowing, leading to further technological homogeneity. At this juncture, Beijing Roborock Technology is increasing its research and development investment in core technology areas, such as developing the "Star Array Navigation 2.0" system for navigation and obstacle avoidance technology, which can identify complex obstacles such as wires and shoes and automatically plan paths. In terms of mechanical structure innovation, the company has pioneered a five-axis folding bionic robotic arm, achieving a leap from 2D cleaning to 3D spatial management. Second is positioning in new categories. By horizontally transferring core technologies, Beijing Roborock Technology quickly enters new areas and establishes barriers. For example, in the field of washing and drying, the company has transferred SLAM algorithms and motor control technology from sweeping robots to washing and drying machines, launching the Z1S Pro washing and drying suite, becoming the only product under 10,000 yuan to receive dual green labels for washing and drying. Its molecular sieve low-temperature drying technology controls the drying temperature to 37C, overcoming pain points of traditional heat pump technology such as high temperature garment damage and residual lint. It is clear that Beijing Roborock Technology's emphasis on technological capabilities is also evident in its research and development investment data. In 2024, Beijing Roborock Technology's research and development investment reached 971 million yuan, an increase of 56.93% year-on-year, focusing on breakthroughs in multimodal model deployment. The scale of research and development far exceeds that of competitors such as Ecovacs Robotics (about 720 million yuan) and iRobot (about 580 million dollars), and its research and development expense ratio (8.13%) ranks first in the industry. By the first half of 2025, the company's research and development investment continued to increase by 67.28% year-on-year to 685 million yuan. High investment has also yielded high technological barriers. Looking at Beijing Roborock Technology's latest patent list, as of the first half of 2025, the company has obtained 580 new authorized patents, including 88 invention patents, enriching its innovation achievements and technological reserves. The number of research and development personnel has also increased to 1,364, a year-on-year increase of 73.54%. For Beijing Roborock Technology, the aforementioned research and development investment is undoubtedly a significant expenditure that will squeeze the company's profit margin. However, in the short or long term, the company's emphasis on technological innovation is a forward-looking move. In the short term, profits will transform into "technology assets" such as patents, data, and talent, while in the long run, when the technological gap reaches a critical point (such as obstacle recognition rate> 99.5%), the leap from "cost-based pricing" to "technology-based pricing" can be achieved through high-end premiums, technology licensing, and ecosystem monopolies. This is also the core profit model of tech giants such as Apple and Qualcomm. Rebound inflection point emerging, clear path to profit recovery Looking at the latest performance, the positive effects of Beijing Roborock Technology's strategic adjustments are gradually becoming apparent. On the revenue side, both domestic and international sales of Beijing Roborock Technology continue to grow, and floor washing machines have doubled in growth. Specifically, data from AVC Cloud shows that the company's traditional e-commerce floor cleaning machines achieved a retail sales growth of more than 50% in the second quarter of 2025, while floor washing machines doubled in growth, accounting for approximately 29% of Stone's traditional e-commerce retail sales. Overseas app download data shows that in the second quarter of 2025, Beijing Roborock Technology continued to see high growth in Europe and Asia-Pacific markets, while North American market growth may have slowed down. On the profit side, Beijing Roborock Technology's continued increase in expenditure investments in the recent period has improved profitability compared to the previous period. According to research report data, in the second quarter of 2025, Beijing Roborock Technology's sales, management, research and development, and financial expense rates increased by +6.46, -0.21, +1.01, and +1.89 percentage points respectively compared to the same period last year. The increase in sales expenses was due to the company's increased coverage of direct sales channels globally and increased channel and marketing expenses. In addition, other income increased and improved performance, but impairment loss and income tax slightly dragged down profits. In a comprehensive view, the company's net profit attributable to shareholders in the quarter was 9.16%, a slight increase from the first quarter of 2025. Regarding the positive effects of Beijing Roborock Technology's strategic adjustment, the vast majority of securities firms have expressed optimistic views. Guosen pointed out that as Beijing Roborock Technology's production capacity in Vietnam gradually ramps up and tariff effects improve, profits from new businesses such as floor washing machines are steadily increasing, and the company is expected to stabilize and rebound in profitability in the second half of the year. Looking ahead, Guolian Securities stated that Beijing Roborock Technology's domestic and international businesses are expected to continue high growth on the revenue side, thanks to strong product capabilities and flexible pricing strategies; on the profit side, the company is expected to execute more flexible competitive strategies on the basis of expanding global markets, and with many of the company's best-selling products being new, the profit margin is likely to be safeguarded. Combined with the company's efficiency improvements in the washing machine business and the scale effect of floor washing machines, this institution believes that the company's profitability at home and abroad may bottom out and rise again. With the company's Hong Kong stock listing process progressing, the investment value of the company is expected to further "break out." In conclusion, it is clear that Beijing Roborock Technology's previous decline in profits was a result of the company's strategic adjustment to exchange profits for market share, technology, and channel construction, resulting in "short-term pain," but this is also the company's proactive choice to obtain long-term competitive advantages. From an investment perspective, the secondary market has not significantly reduced the valuation (the rolling P/E ratio is maintained at around 35 times), reflecting capital's recognition of its high research and development conversion technology premium capabilities, global-local execution power, and positioning value in new categories. In the long run, as Beijing Roborock Technology's path to profit recovery becomes clearer, the company's shift from "scaling with profits" to "creating profits with scale" will enter a new stage, with promising long-term development prospects.