Minimal working example
\documentclass[11pt, twoside]{report}
\usepackage{caption}
\usepackage[]{subfig}
\usepackage{graphicx}
\begin{document}
\begin{figure}
\captionsetup[subfigure]{format=hang,singlelinecheck=false,justification=raggedright}
\subfloat[4-Hy\-droxy\-ben\-zo\-ic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\hfill
\subfloat[Hy\-droxy\-ben\-zo\-ic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\hfill
\subfloat[Hydroxybenzoic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\subfloat[Hydroxybenzoic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\end{figure}
\begin{figure}
\captionsetup[subfigure]{format=hang,singlelinecheck=false,justification=}
\subfloat[4-Hy\-droxy\-ben\-zo\-ic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\hfill
\subfloat[Hy\-droxy\-ben\-zo\-ic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\hfill
\subfloat[Hydroxybenzoic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\subfloat[Hydroxybenzoic acid]{
\includegraphics[width=0.2\textwidth]{4hba_600dpi.png}
}
\end{figure}
\end{document}
Reference rendering

Description
When the justification 'raggedright' is used and the caption must be hyphenated another break is introduced at the next space. Non-breaking spaces can prevent this, but are a poor solution. The workaround used here is resetting justification to the default value. At least, I assume it's what I'm doing in the second figure. The document was compiled using xelatex.
Question(s)
Am I doing anything wrong? Is this a bug? Am I missing a setting? How can I have raggedright justification and proper line-breaking of hyphenated words in subfig captions?
Most likely not duplicates or related: Preventing hyphenation of specific short, repeated, hyphenated words, Hyphenation in listings captions doesn't work correctly, Prevent wrapping of subfloat captions, Figure caption has line break problems when using subfig
