CITIC Securities: Subsidies for floor-sweeping robots exceed expectations, making them hard to find. Structural upgrades promote simultaneous increases in quantity and price

According to the financial news app Zhitong Finance, CITIC Securities released a research report stating that recently, with the further expansion of the scope of subsidies for "trade-in old for new" in the home appliance sector to include cleaning appliances such as sweepers and floor scrubbers, and the subsidy intensity far exceeding expectations (on the JD platform, after the platform discount and national subsidy are combined, the discount level of various brands compared to the original price generally reaches 20% to 40%), consumer potential has been fully unleashed. As a result, many sweeping and floor scrubbing products from various manufacturers on the JD platform have recently been out of stock or delayed in delivery, showing a high demand where "products are hard to find". CITIC Securities is optimistic about the domestic sweeping and floor scrubbing industry benefiting fully from domestic consumption stimulus and economic recovery.

Key points from CITIC Securities:

Core marginal changes: After the subsidies for sweepers and floor scrubbers exceeded expectations, there is a surge in demand where "products are hard to find".

1) Trade-in old for new includes multiple categories of cleaning appliances in the subsidy scope: According to the Ministry of Commerce, as of October 15th, over 20 million consumers have applied and 10 million consumers have purchased 8 major categories of home appliances, enjoying a central subsidy of 13.17 billion yuan, driving sales of 69.09 billion yuan. The trade-in old for new subsidy policy has shown significant effects. Many regions are oriented towards green and intelligent development, autonomously expanding the categories of home appliances eligible for subsidies, with many regions including robotic sweepers, floor scrubbers, etc., in the subsidy scope.

2) Substantial subsidies for sweepers and floor scrubbers, leading to a surge in demand: Taking the example of the JD Mall platform, the representative products such as ECOVACS T50 PRO water tank version, Roborock P20 Pro, and Dreame T20 Stretch S, after the platform subsidies are combined with government subsidies, the consumer prices compared to the original prices have discounts of 32%, 30%, and 33% respectively, with significant discount levels stimulating potential purchasing demand. Therefore, recently on the JD platform, many top manufacturers' sweeping and floor scrubbing products have been out of stock or delayed in delivery. According to AVC data, in 2024W41 (October 7th to October 13th, 2024), online and offline sales of sweepers increased by +568% and +299% respectively year-on-year, while online and offline sales of floor scrubbers increased by +92% and +120% respectively year-on-year, reflecting strong demand.

Strong subsidy-driven structural upgrades, simultaneous rise in quantity and price, companies with products in the mid-to-high price range and high domestic exposure benefit more.

1) Trade-in old for new drives structural upgrades: With a significant discount ratio, higher-priced products receive more subsidies, and consumers tend to choose mid-to-high-end products, leading to a clear trend of industry structural upgrades. According to AVC data, in 2024W39-W41, the average online prices of sweepers increased by +7.9%, -1.2%, +27.7% year-on-year, while the average offline prices of sweepers increased by -1.9%, +2.3%, +10.8% year-on-year. With the trend of structural upgrades, the sweeping industry is expected to show a high prosperity with a simultaneous rise in quantity and price.

2) From the perspective of price segments and domestic exposure, ECOVACS benefits significantly: According to AVC data, in the domestic sales of sweepers in 2023, in the price segment of 4500-5000 yuan, ECOVACS, Roborock, and Dreame accounted for 47.1%, 35.5%, and 13.5% respectively, while in the price segment above 5000 yuan, ECOVACS, Roborock, and Dreame accounted for 36.9%, 20.1%, and 40.4% respectively. ECOVACS stands out in the competition for mid-to-high-end products In September 2024, ECOVACS launched the X8 series, the world's first constant-pressure floor washing robot, with promising performance in the high-end market, potentially leading a new direction in industry technological innovation. From a domestic exposure perspective, according to the company's announcement, in the first half of 2024, ECOVACS and Tinko brands each accounted for approximately 60% of domestic revenue. If the domestic cleaning appliance market continues to recover under subsidy incentives, the company's floor sweeping and floor washing machine business are expected to benefit, providing significant elasticity to the overall revenue.

Optimizing the product matrix and expanding dimensions may promote market share and continuously improve profit margins.

Risk Factors:

Risks include the actual effectiveness of consumer stimulus policies and their impact on the industry, obstacles faced by enterprises in expanding overseas, intensified industry competition leading to a decline in profitability of companies within the industry, and risks associated with new product and technology iterations falling short of expectations.

Investment Strategy:

Against the backdrop of demand stimulated by better-than-expected subsidy policies and driving structural upgrades, domestic sales of floor sweepers, floor washers, and other cleaning appliances are expected to experience a prosperous trend of simultaneous increase in volume and price in Q4 2024. We are optimistic about leading manufacturers of floor sweepers benefiting fully from policy dividends, especially companies with strong competitiveness in the mid-to-high price segment and high domestic revenue contribution. We maintain a "outperform the market" rating for the floor sweeper industry