China Securities Co., Ltd.: The repair logic and competitive landscape of sweeping machines are stabilizing and improving, and the industry's growth potential is expected to be reassessed.

China Securities Co., Ltd. released a research report stating that the floor cleaning machine industry is currently in a phase of logical repair and stabilization of the competitive landscape. The interim report shows that the leading companies have still achieved steady growth in revenue and profit despite the multiple challenges of reduced domestic subsidies and high overseas bases, disproving previous market concerns about the exhaustion of domestic demand and the peak of overseas growth. The industrys growth potential is expected to be reassessed. On the structural level, market share is accelerating towards head brands that excel in product strength, brand power, and channel capability, while the offensive of second-tier brands is slowing down. The pricing power and profit quality of the leading companies are expected to continue to improve. On the cost side, the upstream price increases, such as for storage, have a short-term impact on gross margins. As the price increases stabilize and previous stockpiles are gradually digested, coupled with the low domestic base in the fourth quarter, the profit elasticity is expected to be released seasonally. The main points from China Securities Co., Ltd. are as follows: In H1 2026, the leading companies maintained revenue growth, with overseas business continuously exceeding expectations and domestic performance significantly outperforming the industry; disproving the pessimistic pricing of "domestic exhaustion + peak overseas." At the same time, the market share of second-tier brands has declined, and the competitive landscape is rapidly consolidating around Ecovacs Robotics and Beijing Roborock Technology. In the short term, gross margins are still suppressed by factors such as storage and exchange rates, but Q3 may represent a peak in cost pressure, with profits gradually expected to recover after Q4. We remain optimistic about the profit recovery elasticity following the improvement in the dual leadership structure of the floor cleaning machine industry. Q1: How do you evaluate the interim performance of the floor cleaning machine sector, and why is there a divergence in stock performance? Both leading companies achieved rapid growth in revenue and net profit, but the differences in profit quality determined subsequent stock performance. In Q2 2026, Ecovacs Robotics saw revenue increase by 12.9% year-on-year, with net profit attributable to shareholders rising by 67.0%; however, the adjusted net profit fell by 19.0%, with the profit increment largely coming from changes in fair value income. Beijing Roborock Technology reported a 30.9% increase in revenue and a 111.0% growth in adjusted net profit. Even excluding the impact of tariff refunds, operating profit maintained a growth rate of around 45%. As a result, the market has given Roborock a more positive valuation, while Ecovacs Robotics valuation still needs to wait for improvements in core profitability to be validated. Q2: How do we analyze the actual operational quality of the two companies? Both companies' gross margins have been pressured by raw material and exchange rate costs, but Roborocks expense management is clearly superior. In Q2 2026, Ecovacs Robotics gross margin fell by 2.20 percentage points year-on-year, with the sales expense ratio decreasing by only 0.35 percentage points and financial expense ratio rising by 2.65 percentage points; Roborocks reported gross margin decreased by 0.60 percentage points year-on-year, with actual gross margin falling by about 3.9% after excluding tax refunds, but the ratios of sales, management, and R&D expenses dropped by 6.20, 0.85, and 1.94 percentage points respectively. After adjusting for one-off incomes, Roborock's profit improvement mainly comes from enhanced operational efficiency, while Ecovacs Robotics still needs to observe expense optimization and stabilization of gross margins. Q3: Is the growth potential of the Siasun Robot & Automation industry being underestimated? The reduction of domestic subsidies and the high overseas base have not changed the growth trend of the industry, and previous market concerns about demand exhaustion appear overly pessimistic. In Q1 2026, global shipments of household cleaning Siasun Robot & Automation increased by 36.7% year-on-year; in H1 2026, Ecovacs Robotics and Roborocks overseas revenues increased by 44.7% and 53.8%, respectively, with overseas revenue proportions rising to 49.4% and 60.2%. Although the domestic industry's retail sales fell by 4.0%, Ecovacs Robotics and Roborocks retail sales rose by 17% and 15%, respectively, indicating that the leaders can achieve structural growth that outpaces the industry through market share gains, new product iterations, and channel expansions. Q4: Has the competitive landscape of the Siasun Robot & Automation industry effectively improved? The industry is transitioning from a multi-brand melee to dual leadership domination; this easing of competition is expected to improve pricing power and profitability. In Q2 2026, the online retail share of Roborock and Ecovacs Robotics together reached 67.3%, a new high in nearly two years; cumulative retail sales grew by 6.04% and 4.84%, significantly better than the 8.8% drop in the industry. During the same period, the expansion of second-tier brands has slowed, and inefficient supply is exiting, further strengthening the scale, brand, and channel advantages of the dual leaders. Q5: How do you assess the industry and performance trends in the second half of the year? The second half of the year is expected to exhibit characteristics of "low domestic growth followed by high growth, continued overseas growth, and initial high followed by low cost pressures." Domestic growth is still facing high bases in Q3, but as the base falls, alongside the Double Eleven promotions and the release of new products in Q4, growth rates are expected to improve; overseas expansion will further extend to offline channels and new categories such as lawn mowers and floor washers. Storage prices will still pressure Q3 gross margins, but the rate of increase has already narrowed. Considering the lag in procurement and inventory turnover, profit margin recovery is expected to gradually manifest starting from Q4. Risk Warning: 1. Macroeconomic growth may not meet expectations, as cleaning appliances are durable consumer goods closely related to residents' income expectations. If macroeconomic growth slows, it may have a significant impact on the sales of the company's products; 2. Raw material prices may not decline as anticipated: The company's raw material costs account for a sizable portion of its operating costs, and if commodity prices rise again, the companys profitability will weaken; 3. Overseas market risks: Recent years have seen increased uncertainty in overseas environments, and the company has a high proportion of export sales. If external demand decreases, performance will be adversely affected; 4. Intensified market competition: In a weak market environment, industry competition is more fierce, posing risks of market share loss and lower profitability due to price competition.