Citi: Ecovacs Robotics’ third-quarter revenue rises but profit falls as memory chip costs squeeze margins

Why did profit fall sharply despite revenue growth?

In the third quarter of 2026, group revenue rose 11% year over year, but gross margin fell 10.2 percentage points to 39.6% and was also below the second quarter’s 47.5%. Operating profit fell 39% year over year to 266 million yuan, and operating margin declined to 5.7%.
Management said higher memory chip prices reduced gross margin by more than 5 percentage points, while renminbi appreciation reduced it by about 2 percentage points. The quarter also included approximately 10 million to 20 million yuan in US tariff refunds.
Excluding an after-tax non-recurring loss of 105 million yuan, core net profit fell 47% year over year to 226 million yuan, below market expectations. After fair-value losses and income tax credits, reported net profit fell 72% year over year to 121 million yuan.

Management said that under the first-in, first-out method, the third quarter was the first in which the company used almost entirely memory chip inventory purchased after prices rose. Chip prices are still rising, but at a slower pace. Management believes the quarter-on-quarter cost impact peaked in the third quarter and that further quarter-on-quarter impact will be limited through the second quarter of 2027, although year-over-year pressure will persist through the first half of 2027.
At the end of the third quarter, chip inventory was sufficient to cover projected usage through the second quarter of 2027. Management said that if the inventory were valued at spot prices, quarterly gross profit would fall by at least 100 million yuan; gross margin could stabilize or recover once other cost-reduction measures take effect.
Stockpiling also tied up cash: third-quarter operating cash flow swung to an outflow of 548 million yuan from an inflow of 507 million yuan a year earlier, while inventory increased 66% from the end of 2025.

Management said third-quarter sales of the Ecovacs brand were about 2.9 billion yuan, accounting for roughly 62% of group sales. Sales in China rose more than 20% year over year, while overseas sales grew about 20%. Its share of Europe’s 400 to 600 dollar price range expanded, driving a higher sales contribution from the T series of roller-mopping products.
Overseas offline sales exceeded online sales for the first time, helping the group’s selling expense ratio fall 6.6 percentage points year over year to 24.6%. Management expects the selling expense ratio for mature categories to remain flat or decline, but new categories such as lawn-mowing, pool and window-cleaning robots still require investment.
Tineco brand sales were about 1.7 billion yuan, roughly flat year over year: overseas growth of more than 20% was offset by a double-digit decline in China, where average selling prices for floor washers were under pressure. The brand’s gross margin remained above that of Ecovacs but fell year over year due to renminbi appreciation and price competition in China.
Management said the EU’s average anti-dumping duty on Ecovacs lawn-mowing robots is about 47%, is not retroactive and applies to shipments for the 2027 selling season.

Citi currently forecasts the company’s 2026 net profit at about 1.8 billion yuan, approximately 10% below the market consensus of about 2 billion yuan. The bank maintained its buy rating and set a target price of 73.9 yuan.
The target price implies a price-to-earnings multiple of 21 times Citi’s forecast for 2026, a 25% premium to its target multiple for Roborock, on the grounds that Ecovacs places greater emphasis on capital returns and profitability. However, Citi prefers Roborock of the two companies.