While some of its peers are facing challenging times for their development projects in Johor Baru, especially in the Iskandar Development Region, Johor-based KSL Holdings Bhd has managed to maintain steady sales in the state, although growth isn’t robust.

In the past three financial years ended Dec 31, it managed to achieve annual property sales of above RM500 million. The financial year ended Dec 31, 2014 (FY2014) was a bumper year, with property sales hitting RM643.1 million, and a one-for-one bonus issue was declared to reward shareholders.

“Despite the more challenging environment, we believe the sector has its bright spots. The government continues to encourage the development of affordable houses. Some of our projects are in this category and we believe that we will be able to benefit from this,” executive chairman Ku Hwa Seng says in KSL’s latest annual report.

Apart from property sales, KSL has a source of recurring income in its shopping mall and hotel — KSL City Mall and KSL Hotel & Resort — in Johor Baru. KSL City Mall has a gross floor space of one million sq ft and KSL Hotel & Resort, located near Legoland Malaysia, has 868 rooms.

The strategic location of the mall and hotel  has enabled the group to enjoy high rental yield and steady cash flow. In FY2016, the property investment division, which houses the hotel and shopping mall, generated revenue of RM164 million, or 24% of the group’s total revenue, compared with RM157.9 million in FY2015.

In fact, the group’s earnings derived from the property investment segment are comparable to those of some real estate investment trusts (REIT) listed on Bursa Malaysia.

KSL achieved revenue of RM689.1 million in FY2016, slightly higher than the RM686.1 million in FY2015. Revenue soared to RM801 million in FY2014, from RM680 million the year before.

Profit after tax (PAT) hit a record high of RM342.3 million (FY2014) at the peak of the property boom — a big jump from RM181.5 million in FY2013.

In the subsequent two years, KSL’s net profit came from the peak, but remained above RM200 million. The group recorded a profit RM266.1 million in FY2015, and RM314.5 million in FY2016. This translates to a compound annual growth rate of 20.1%, making it the winner of The Edge Billion Ringgit Club, Best Three-Year PAT Growth for 2017, in the property sector (below RM3 billion market cap). This is the second time KSL has bagged an award by The Edge Billion Ringgit Club. It won for Best Return on Equity (ROE) last year with a weighted three-year ROE of about 17%. Its three-year ROE CAGR is still close to 17%.

KSL’s financial resilience is also thanks to its strong balance sheet. It has a gearing ratio of barely 0.05 times, and minimal borrowings has spared KSL from the pressure of high interest expenses that drain cash flow when sales are not as brisk as before.

KSL’s development strategy is to mainly focus on affordable homes for the local community, rather than building luxurious high-end residential units for foreign buyers. This seems to have paid off.

Ku once told The Edge in an interview that the purchasing power of people in Johor are growing strongly as many of them are earning Singapore dollars. Because of that, the state’s demand for property is expected to be resilient. Furthermore, the country’s young population will mean more households will be set up in the future and hence, lead to a growing demand for property.

KSL is growing its investment property portfolio following the success of KSL City Mall and KSL Hotel & Resort in Johor Baru. To seize the opportunities in the emerging tourism and hospitality industry, KSL said in its latest annual report that it has undertaken another hotel project — KSL Hot Spring Resort @ Daya— a 294-room, one-block hotel in Johor Baru.

As at Dec 31, 2016, KSL had a land bank of 2,150 acres spread across Johor — in Segamat, Batu Pahat, Muar, Mersing, Johor Baru — as well as in Kuala Lumpur and Klang.