China’s leading cleaning robot maker Ecovacs (科沃斯, 603486.SH) saw its losses widen in a stock market rout that pared billions of yuan off its market value.
The company extended its losing streak today, closing 8.78% lower to 54.97 yuan (US$7.54) apiece, with a market cap of 38.63 billion yuan.
This followed a plunge of 10%, the daily limit-down, a day earlier.
This is despite a short-lived rally of China’s Class-A stock market yesterday thanks to the country’s halving of its stamp duty on stock trading.
Market pundits blamed the plunge of Ecovacs, once a poster child whose market cap hit an all-time high of 140 billion yuan, on a steep decline in its net profit during the first half of this year, according to its financial results disclosed yesterday.
The Suzhou-headquartered firm’s H1 net profit slid 33.4% to 584 million yuan year on year despite its revenue rising 4.72% from the same period last year to 7.14 billion yuan.
According to its financial report, Ecovacs generated 3.50 billion yuan in sales from the Ecovacs-brand cleaning robots, which accounted for 49.05% of its overall revenue, 0.22% higher than a year earlier.
Tineco (添可), the premium unit under the Ecovacs brand, recorded income of 3.21 billion yuan, making up 45.91% of the total, an increase of 11.08% over the previous year.
As the Chinese economy stagnates, dwindling demand for high-end cleaning gadgets like robot vacuums has dealt a heavy blow to manufacturers like Ecovacs.
Retail sales numbers tracked by GfK, a market intelligence provider focusing on home appliance, indicate that China’s robot vacuum market in the first half of 2023 dipped 0.6% over a year earlier to 6.36 billion yuan.
More intense competition
In addition to a sluggish market, Ecovacs also faces more intense competition from rivals like Roborock (石头科技, 688169.SH), Dreametech (追觅科技) and Narwal (云鲸智能).
Ecovacs isn’t known for its aptitude for innovation. In 23H1, its sales expenditure amounted to 2.30 billion yuan, up 23.66%, while R&D spending only rose 10.86% to 390 million yuan.
The sales spending is 5.88 times the sums going to R&D, the firm’s financial results show.
The company has been launching new businesses like automated robotic cooks “Shi Wan,” mowing robots GOAT G1 and commercial cleaning robot series Deebot Pro K1 and M1.
However, industry observers pointed that these new segments are unlikely to seize a big market share, making it impossible for them to make up for losses sustained by other sub-categories.
“What’s more, Ecovacs has mediocre ability in technological R&D and product innovation,” said Liang Zhenpeng, a home appliance market analyst. “Nor does it possess a technical advantage in the upstream core components industry or a strength in procurement processes.”