When comes to stock trading, there is nothing more imperative than adopting solid risk management procedures. Most people tend to forget Buffett’s two rules: Rule 1 – Do not lose money. Rule 2 – Do not forget Rule 1.
Malaysia’s listed OKA Corporation Bhd is an investment holding company. The Company is engaged in the manufacturing and sale of pre-cast concrete products and trading of ready-mixed concrete. The Company is a supplier of concrete pipes, concrete spigot and socket pipes, jacking pipes, box culverts, L-shape retaining wall units, U-shape drain, concrete porous subsoil pipes, ready mixed concrete, concrete septic tanks, precast manhole components, reinforced and pre-stressed concrete square piles, arch bridge system, pre-stressed beam, industrialized building system (IBS) components, jetty components and her concrete products to cater for the Malaysian infrastructure, sewerage, construction and highway industry. Its products include T-Beams/M-Beams, precast concrete pipe, large diameter pipe, prestressed concrete piles and precast concrete piles. Fundamentals are relatively solid for this company, with growing revenue, ROE and minimal gearing. In fact, one research analyst forecasts this counter to reach a target price of RM1.61 per share https://markets.ft.com/data/equities/tearsheet/forecasts?s=OKA:KLS
OKA’s share price exhibits an uptrend since late last year. Higher High, Higher Low. In fact, it even breaks a flag to continue on its share price uptrend.
If you believe there is further leg in the Malaysian construction sector’s growth trajectory, then one may consider OKA to be a good a proxy to this sector.
How would one possibly approach the entry for OKA (from a simple risk management perspective)?
- Trade at possible pullback at RM1.440
- Set a stop loss at possible support of RM1.28
- My maximum risk that I would take is RM0.16 (i.e “1R”)
- Minimum return to be at least 1R so that return-to-loss ratio of 1x.
- Assuming we set 1.25R as target return of RM1.64 (depending on momentum at that point in time, we may undertake partial or full exit to realise the profits)
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