Why SamyoungLtd's (KRX:003720) Healthy Earnings Aren’t As Good As They Seem

Solid profit numbers didn't seem to be enough to please Samyoung Co.,Ltd.'s (KRX:003720) shareholders. Our analysis has found some concerning factors which weaken the profit's foundation.

Check out our latest analysis for SamyoungLtd

The Impact Of Unusual Items On Profit

To properly understand SamyoungLtd's profit results, we need to consider the ₩5.0b gain attributed to unusual items. We can't deny that higher profits generally leave us optimistic, but we'd prefer it if the profit were to be sustainable. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. Which is hardly surprising, given the name. SamyoungLtd had a rather significant contribution from unusual items relative to its profit to December 2023. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that SamyoungLtd received a tax benefit which contributed ₩1.3b to the bottom line. 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. 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.

Our Take On SamyoungLtd's Profit Performance

In the last year SamyoungLtd received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. And on top of that, it also saw an unusual item boost its profit, suggesting that next year might see a lower profit number, if these events are not repeated. Considering all this we'd argue SamyoungLtd's profits probably give an overly generous impression of its sustainable level of profitability. If you'd like to know more about SamyoungLtd as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 3 warning signs for SamyoungLtd and we think they deserve your attention.

Our examination of SamyoungLtd has focussed on certain factors that can make its earnings look better than they are. And, on that basis, we are somewhat skeptical. But there are plenty of other ways to inform your opinion of a company. 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.