Additional Considerations Required While Assessing Hanjin Heavy Industries & Construction Holdings' (KRX:003480) Strong Earnings

Hanjin Heavy Industries & Construction Holdings Co., Ltd.'s (KRX:003480) robust earnings report didn't manage to move the market for its stock. We did some digging, and we found some concerning factors in the details.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Hanjin Heavy Industries & Construction Holdings' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit gained from ₩22b worth of unusual items. While it's always nice to have higher profit, a large contribution from unusual items sometimes dampens our enthusiasm. When we crunched the numbers on thousands of publicly listed companies, we found that a boost from unusual items in a given year is often not repeated the next year. Which is hardly surprising, given the name. We can see that Hanjin Heavy Industries & Construction Holdings' positive unusual items were quite significant relative to its profit in the year to March 2025. All else being equal, this would likely have the effect of making the statutory profit a poor guide to underlying earnings power.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Hanjin Heavy Industries & Construction Holdings.

An Unusual Tax Situation

Just as we noted the unusual items, we must inform you that Hanjin Heavy Industries & Construction Holdings 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. 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. Assuming the tax benefit is not repeated every year, we could see its profitability drop noticeably, all else being equal.

Our Take On Hanjin Heavy Industries & Construction Holdings' Profit Performance

In its last report Hanjin Heavy Industries & Construction Holdings received a tax benefit which might make its profit look better than it really is on a underlying level. Furthermore, it also benefitted from a positive unusual item, which boosted the profit result even higher. For the reasons mentioned above, we think that a perfunctory glance at Hanjin Heavy Industries & Construction Holdings' statutory profits might make it look better than it really is on an underlying level. So while earnings quality is important, it's equally important to consider the risks facing Hanjin Heavy Industries & Construction Holdings at this point in time. To help with this, we've discovered 3 warning signs (1 is a bit concerning!) that you ought to be aware of before buying any shares in Hanjin Heavy Industries & Construction Holdings.

In this article we've looked at a number of factors that can impair the utility of profit numbers, and we've come away cautious. But there are plenty of other ways to inform your opinion of a company. 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.