Pyung Hwa Holdings' (KRX:010770) Strong Earnings Are Of Good Quality

The subdued stock price reaction suggests that Pyung Hwa Holdings Co., Ltd.'s (KRX:010770) strong earnings didn't offer any surprises. Our analysis suggests that investors might be missing some promising details.

View our latest analysis for Pyung Hwa Holdings

The Impact Of Unusual Items On Profit

For anyone who wants to understand Pyung Hwa Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩6.8b due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. In the twelve months to December 2023, Pyung Hwa Holdings had a big unusual items expense. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Pyung Hwa Holdings.

An Unusual Tax Situation

Having already discussed the impact of the unusual items, we should also note that Pyung Hwa Holdings received a tax benefit of ₩5.8b. It's always a bit noteworthy when a company is paid by the tax man, rather than paying the tax man. Of course, prima facie it's great to receive a tax benefit. And since it previously lost money, it may well simply indicate the realisation of past tax losses. However, the devil in the detail is that these kind of benefits only impact in the year they are booked, and are often one-off in nature. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth. So while we think it's great to receive a tax benefit, it does tend to imply an increased risk that the statutory profit overstates the sustainable earnings power of the business.

Our Take On Pyung Hwa Holdings' Profit Performance

In its last report Pyung Hwa Holdings received a tax benefit which might make its profit look better than it really is on a underlying level. But on the other hand, it also saw an unusual item depress its profit. Considering the aforementioned, we think that Pyung Hwa Holdings' profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. If you want to do dive deeper into Pyung Hwa Holdings, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Pyung Hwa Holdings (including 1 which is potentially serious).

In this article we've looked at a number of factors that can impair the utility of profit numbers, as a guide to a business. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.