Moorim Paper's (KRX:009200) Anemic Earnings Might Be Worse Than You Think

A lackluster earnings announcement from Moorim Paper Co., Ltd. (KRX:009200) last week didn't sink the stock price. We think that investors are worried about some weaknesses underlying the earnings.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Moorim Paper's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by ₩6.2b due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And, after all, that's exactly what the accounting terminology implies. If Moorim Paper doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Moorim Paper.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Moorim Paper received a tax benefit which contributed ₩15b 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. We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On Moorim Paper's Profit Performance

In the last year Moorim Paper 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. Having said that, it also had a unusual item reducing its profit. Having considered these factors, we don't think Moorim Paper's statutory profits give an overly harsh view of the business. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 5 warning signs for Moorim Paper (1 doesn't sit too well with us!) and we strongly recommend you look at these before investing.

Our examination of Moorim Paper has focussed on certain factors that can make its earnings look better than they are. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.