J.P. Morgan: Ecovacs Robotics’ third-quarter gross margin plunges; earnings forecasts and price target cut

Why did revenue growth not translate into profit growth?

Ecovacs Robotics reported third-quarter 2026 revenue of 4.647 billion yuan, up 11% year over year and broadly in line with expectations; net profit, however, fell 72% year over year to 121 million yuan, about 70% below both market consensus and JPMorgan’s forecast.
Gross margin fell 10.2 percentage points year over year to 39.6% for the quarter, below the bank’s forecast of 47%. Operating expenses fell 5% year over year, but the savings were insufficient to offset the gross-margin decline; a fair-value loss of 137 million yuan on investments further weighed on profit.

JPMorgan estimates that rising costs and price pressure each accounted for about half of the gross-margin decline. Since the fourth quarter of 2025, memory chip prices have risen to 3 to 4 times their previous level. The bank estimates that this reduced the gross margin on robotic vacuum cleaners by 5 to 6 percentage points and the group’s gross margin by 3 to 4 percentage points; higher plastic prices added further pressure.
Intensifying domestic competition has limited the ability to pass costs on through selling prices. Data from AVC shows that the company’s online retail prices for robotic vacuum cleaners and floor washers fell 11% and 18% year over year, respectively, in the third quarter, compared with declines of 7% and 13% for direct competitors.
The company’s gross-margin decline was markedly greater than the 2 to 3 percentage-point decline at peers. JPMorgan believes this reflects weaker execution in chip procurement, product cost design, and price and product mix management; the company’s greater exposure to the domestic market may also amplify the effects of pricing and product mix.

JPMorgan is more cautious about near-term gross-margin recovery and has cut its net profit forecasts for 2026 through 2028 by 24%, 11% and 12%, respectively, to 1.532 billion, 1.671 billion and 1.857 billion yuan. Its 2027 forecast is 31% below Bloomberg market consensus.
The bank expects a full-year 2026 gross margin of 43.3%, 3.8 percentage points below its previous forecast, and a 2027 margin of 43.4%, 3.2 percentage points below its previous forecast. Its cautious view is based on competition limiting cost pass-through and market-share losses in the floor-washer business.
JPMorgan maintains its Underweight rating and has cut its price target from 45 yuan to 40 yuan, while moving the target date from June 2027 to December 2027. The valuation still uses a 2027 forecast price-to-earnings multiple of 14 times, below the past two-year average of 19 times.

As of the third quarter of 2026, ecosystem investments accounted for 7% of the company’s total assets and 25% of its long-term assets. Over the past two years, investment gains have sometimes exceeded a quarter’s core operating profit, while losses have at times wiped out about half of it, making reported profit harder to predict.
The company announced a share buyback of 150 million to 200 million yuan from November 2026 to October 2027 for employee incentives. Based on a 30% payout ratio, JPMorgan estimates a dividend yield of about 1.8%; the indicative combined dividend and buyback yield is about 2.4%, below the 5% to 10% at most home appliance companies. The intended use of the repurchased shares also limits the direct return to shareholders.