Ecovacs Benefits from 'Smart Home' Concept – Stock Up 120% So Far in 2020
As the IoT era and smart economy arrive, the leading Chinese home robotics company Ecovacs stands out as a success story. It has posted its 2020 interim financials with net profit increased 51% YoY and gross margin lifted to 40%.
Taking the lead, with around 50% market share of the Chinese vacuum robot market, Ecovacs Robotics (603486:SH) is principally engaged in the R&D, design, manufacturing, and sales of various kinds of family service robots and related accessories. Both Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) and its self-branded products are included in the company's revenue stream. However, since 2019 the company has re-directed and applied a strategy of cutting off its ODM business and developing its self-branded products.
Affected by COVID-19 and the corresponding lockdowns and work/study-from-home policies, people spent more time at home during the first half of 2020, which has to some extent boosted the consumption demand for home appliances including robotic vacuum and mop products. Consequently, the sales in the second quarter of 2020 grew at 22% year-over-year to CNY 1.44 billion. In line with the cutting ODM strategy, the revenue from its self-branded service robots and the home appliance sub-brand TINECO accounted for 73% of the total, driving its gross margin up by 2.9 percentages to 40%.
Read more about the 1H 2020 financial report of Ecovacs.
The capital market also seems to be positive on the company's performance. Rising over 120% since the beginning of 2020, the company's stock price performs well better than the Shanghai composite index, which only presented a 4% increase over the same period. Two reasons contribute to the rocketing market cap.
First, the company is in an absolute leader in its sector – the family service robot. According to China Market Monitor (CMM), in the first quarter of 2020 Ecovacs vacuum robots accounted for approximately 50% of the total Chinese market, followed by Xiaomi (01810:HK) with around 20% and Roborock (688169:SH) at 10%. The leading position is a result of well-established supply and distribution channels, branding and product design, and is also likely to bring the company more 'economies of scale' to lift the profitability.
Second, in May 2020, the company reached an agreement with the global vacuum robot company iRobot (IRBT:NASDAQ) for international expansions. The agreement said iRobot will purchase products from Ecovacs to sell them under its own brand, and in return, iRobot will authorize Ecovacs to apply its patents and technologies related to Aeroforce. Already distributing products in Japan, the US and Europe, the company's overseas market should be further expanded through this cooperation.