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The 2014 All-China Research Team: Consumer/Discretionary, No. 1: Chen Luo

< The 2014 All-China Research TeamChen LuoBank of America
Merrill LynchFirst-Place Appearances: 2

Total Appearances: 4

Analyst Debut: 2011

Chen Luo leaps from third place to notch his second top finish in three years. The Bank of America Merrill Lynch analyst “is very objective in analyzing companies and stocks,” attests one supporter. The 37-year-old researcher works out of Singapore, covering ten Chinese discretionary stocks of 15 total consumer names. The sector was down 4.5 percent year to date through late November, trailing the domestic broad market by 4 percentage points, and given structural headwinds, he is cautious for the year ahead. Inhibiting factors that these retailers face, he advises, include China’s macroeconomic slowdown, the threat from e-commerce, oversupply in commercial property and leakage to overseas consumption. Accordingly, “our key strategy this year is to stay defensive and selective,” says Luo. From a cyclical perspective, however, he foresees that the group’s earnings will hold their own and could even improve in the next 12 months. Stabilizing channel inventory will help, as will the removal of some technical distortions, such as the easing of foreign exchange losses — which hit many consumer names in the first half of 2014 — through a strengthening renminbi. As a result, the analyst is focusing on two types of plays for 2015: outfits with structural growth angles and companies or subsectors with cyclical turnaround opportunities. His top pick is Qingdao Haier Co., China’s leading branded white goods producer. “It enjoys a superior integrated supply chain,” explains Luo, “with leverage to China’s booming third-party logistics and e-commerce given its controlling stakes in Haier Electronics [Group Co.], a leading logistics services provider, and strategic partnership with Alibaba [Group Holding].” Qingdao Haier is a deep-value stock, he continues, trading at a big discount to its historical average price-to-earnings ratio and projected to deliver a double-digit free cash flow yield next year.

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