► Roborock accounted for 11% of the domestic cleaning robot market share in 2019.
► The current PE falls to 31.55, dropped 32% from its IPO date.

On February 21, Roborock (688169:SH), a Xiaomi-backed smart home appliances provider, started trading officially on the Star Market. The price started at CNY 271.12 per share, which was the highest issued price on the board, and had hit CNY 538.88 at its first trading day. After the hype, the stock price has fallen to a rational level with a current PE of 31.55, but it’s still the most expensive stock on the Star Market.

Founded in 2014, Roborock is a smart appliance developer and manufacturer specializing in intelligent hardware design, R&D, production and sales of intelligent cleaning robots. It is also applying lidar technology and related algorithms on a large scale in the field of intelligent cleaning robots. According to its website, its main products include six types of smart cleaners with a price range from CNY 1,099 to CNY 2,700.

According to Roborock’s annual report, in 2019, the company achieved a sales revenue of CNY 4.21 billion, an increase of 37.81% year-on-year; and realized a net profit of CNY 783 million, an increase of 154.52% year-on-year. In the first quarter of 2020, it achieved an income of CNY 611 million, a year-on-year decrease of 29.48%; net profit of 126 CNY million, a year-on-year decrease of 7.94%. Regarding the decline in performance growth in the first quarter of 2020, Roborock stated that it was mainly due to the decrease in orders for customized products of Xiaomi and the impact of the COVID-19 pandemic on the industry. 

Xiaomi’s ecosystem brings strong supply chain management, while concerns around Roborock’s single product structure still exists.

Actually, Roborock is the first company in Xiaomi’s supply chain on the Star Market. Before this, wearable-device firm Huami (HMI:NYSE) and Internet-of-things-enabled home products provider Viomi Technology (VIOT:NASDAQ) went public in the US successfully, both part of Xiaomi’s ecological chain.

Today, tech giant Xiaomi connects more and more users to each other and to services through cost-effective, diversified products and efficient marketing channels. A clear and vibrant ecological chain is gradually being built and many companies are joining up, following the company’s blueprint. Across the entire Internet of Things (IoT) strategy, the core idea is "connection." First, between people and things, then between people, then finally reaching a big IoT era where everything is connected.

These companies are under the control of Xiaomi’s unified quality control; in the meantime, leveraging Xiaomi’s supply chain and credit endorsements, they are able to compress production costs in the initial stage and achieve mass sales through Xiaomi’s platforms to grab market share.

However, investors have been concerned about Roborock’s simple product line. From 2017 to 2019, the revenue of its cleaning robots accounted for more than 90% of the main business revenue. The company stated in its annual report that it has a single product structure and relatively few product categories. In the future, if the market demand for cleaning robots fluctuates greatly or the company cannot respond to consumer demand for smart cleaning robot performance and new functions in a timely manner, the company’s performance will be adversely affected.

Intense market competition

From the perspective of domestic market share, the top three brands in the domestic market in the first half of 2019 are ECOVACS, Xiaomi and Roborock, with market shares of 48%, 12% and 11%, and a total market share of 71%.

From the perspective of the domestic online market share, the top five brands in the online market in the first half of 2019 were ECOVACS, Xiaomi, Roborock, Haier and iRobot, accounting for 43.4%, 13.3%, 12.7%, 5.0% and 4.8%, respectively. The total market share of the top 5 suppliers is 79.2%.

It is worth noting that ECOVACS is slightly ahead of Roborock in terms of R&D expenditure. In 2019, ECOVACS’s R&D expenses were CNY 277 million, an increase of 35.2% over the previous year, while Roborock’s R&D expenses were CNY193 million, of which salary expenses accounted for 68.43% of R&D expenses.

Industry trends of cleaning robots

(1) Product intelligence upgraded and user experience enhanced

Cognitive intelligence means that the machine has the ability to think and understand actively and realize the human-computer interaction with the user. As an intelligent combination of hardware and software, the intelligent cleaning robot's technological breakthrough is the key driving force for industrial upgrading.

The development of data resources, computing power and core algorithms will jointly promote innovation in the intelligent cleaning robot industry. At present, the technical trend of intelligent cleaning robots is changing from random collision to path planning and will be oriented towards cognitive intelligence in the future. Specifically, it can collect information on the cleaning area, such as house structure, item placement, and user habits combined with big data analysis, deep learning and artificial intelligence technology, based on user preferences, to form a variety of cleaning modes. It provides users with personalized services, thereby greatly improving the consumer experience.

(2) Multiple scenarios expand product application areas

With the continuous improvement in technology, the types of consumer demands for cleaning robots will become more and more complex, and the application of diverse scenarios will become the development direction of the industry. The major suppliers are actively laying out various product areas, strengthening the technological innovation of various products and the development of artificial intelligence, and promoting the diversification of intelligent sweeping robot product forms. In the future, the products will further integrate the application of artificial intelligence and other technologies to meet the needs of consumers in different application scenarios. At the same time, the application of high-performance and new-type sensors such as vision sensors, low-cost high-performance lidar sensors, software anti-collision contact sensors, and so on, will provide smart sweeping robots with richer information at the algorithm level. The multi-sensor information fusion processing algorithm can extract effective information and optimize the algorithm according to the optimization strategy.

(3) The market competition in the industry is becoming increasingly fierce, and the brand concentration will continue to increase

The main players in the smart cleaning robot market include service robot companies and traditional home appliance companies. With the increase in market participants, the competition will become more intense. For the domestic market, companies with strong brands and independent research and development capabilities will further consolidate their market position. Competitive companies can use capital, R&D, and channels to gain more market share, and market brand concentration will continue to increase.