Underestimated global RVC penetration potential in the next five years We initiate coverage on the global robotic vacuum cleaner (RVC) sector with a positive stance, in collaboration with the UBS China 360 team. We think technological innovations and premiumisation are two major drivers of the RVC industry. We expect the global/Chinese RVC markets sales of US$13bn/US$5bn in 2025E, with 24%/30% CAGRs in 2020-25E versus the below 10% 2020-25E CAGRs of China’s major/small appliances markets. Given the lack of tracking data for this niche market, we think investors may be underestimating the global RVC penetration potential. However, our analysis of the Chinese market shed some light on this space. We expect China’s RVC penetration to rise from about 5% currently to 11% in 2025E. We initiate coverage on Roborock and Ecovacs with Buy ratings. We expect the RVC leaders to strengthen their dominant positions in China and accelerate their global market share consolidation.

Leaders' competitive edge strengthened by further R&D investments Roborock/Ecovacs (42%/11% Chinese retail shares in 2020) have led China’s RVC consumption upgrades in recent years. We expect them to maintain their dominant positions in the next five years, backed by their ongoing product innovations, R&D investments and the technical know-how amassed over the years. We do not expect Midea or new entrants to catch up with them in the near term, given the incumbents' strengths in software algorithms and first-mover advantages in consumer interactions.

Chinese brands are accelerating the consolidation of global market shares China RVC brands are upgrading the technology components, and in some cases, their products are more advanced than their western peers. We expect Chinese brands' competitive strengths in product innovation and value proposition to continue propelling their share gains in global markets. In particular, US consumption rebound, US property upcycle, and rising global online penetration are potential tailwinds to the 'Go Global' theme. These trends were also highlighted by UBS Evidence Lab’s (> Access Dataset) latest US app download tracker.

Buy Roborock, Ecovacs and JS Global We expect Roborock to benefit most from the potentially rapid RVC growth globally, given its highest RVC sales exposure and strengths in software algorithms. Ecovacs' category expansion capabilities make it the most defensive company in the long run, in our view. We consider JS Global an overlooked RVC brand; it remains our top pick owing to its global expansion prospects and attractive valuation.