UPDATE 3-Hyundai profit jumps, defies slowdown in Europe

Thu Apr 26, 2012 2:51am EDT

* Q1 net profit 2.45 trln won vs 2.07 trln forecast

* Q1 operating profit 2.28 trln won; sales 20.16 trln won

* Global auto demand to rise 5.6 pct this year - CFO

* Hyundai shares up 1.75 pct in flat market

By Hyunjoo Jin

SEOUL, April 26 (Reuters) - Hyundai Motor bucked sluggish markets in Europe and China and boosted sales in the United States, driving quarterly net profit up by almost a third to $2.15 billion, its highest since changing accounting methods a year ago.

The $54 billion South Korean carmaker, which with affiliate Kia Motors is the world's fifth largest, said it expects to beat an aggressive sales target for Europe - of an increase of 15.4 percent to 465,000 vehicles this year - even though the market is seen falling 5 percent. Hyundai increased its European sales by 11 percent last year.

The European car market slid 8 percent in the first quarter, but Hyundai posted double-digit sales growth helped by new models such as the revamped i30 compact. French automakers PSA Peugeot Citroen and Renault this week reported falls of 7 percent and 8.6 percent respectively in first-quarter sales as the French market alone shrank by nearly a fifth.

Shares in Hyundai have risen close to 13 percent this month, hitting a life high of 269,500 won ($240), while Japanese rivals Toyota Motor, Honda Motor and Nissan Motor , as well as Ford, General Motors and Volkswagen have all fallen.

January-March net profit at Hyundai jumped to 2.45 trillion won from 1.88 trillion won a year earlier, well ahead of a consensus forecast of 2.07 trillion won from Thomson Reuters I/B/E/S.

"There's no reason why Hyundai can't continue this upward trend in the second quarter. The U.S. market looks fine and although there are slowdown concerns in Europe and China. In China foreign brands like Hyundai are performing well," said Kim Dae-hwan, fund manager at Shinyoung Asset Management.

Once derided for its poor quality, boxy cars, Hyundai, under Chairman Chung Mong-koo, has moved up the quality ladder and is envied by rivals for offering stylish models at affordable prices even during an industry downturn. Its operating margin of around 10.5 percent is more than four times that of Toyota.

The maker of the Sonata sedan and Elantra compact has also benefited from a cheaper South Korean won and free trade deals with Europe and the United States.

After a period of breakneck growth, Hyundai's engine is slowing, but not stalling. Net profit is expected to grow 9 percent to a record 8.85 trillion won this year, though that pace of growth will be just a quarter of last year's, according to Thomson Reuters SmartEstimates.

Hyundai's sales in its home market skidded 7 percent in the first quarter. A year ago, domestic sales accounted for 16 percent of Hyundai's total, and the captive market - where 8 out of every 10 cars is a Hyundai or a Kia - has helped fund the group's overseas growth.

U.S., CHINA DRIVE DEMAND

On an earnings call, Hyundai's chief financial officer Lee Won-hee said global demand for cars this year would increase by 5.6 percent - more than has generally been forecast - driven by the United States and China.

"There are few risks for Hyundai's strong growth momentum," said Kang Sun-sik, a fund manager at Woori Asset Management, which holds Hyundai stock. "Its overall sales remain strong globally thanks to improving brand and quality, the won is trading relatively cheap and its key rivals, especially Japanese, continue to struggle.

"It will take a while for the Japanese to fully recover and, until then, Hyundai/Kia will probably be the best auto stocks with a promising earnings outlook."

Of 51 analysts covering Hyundai, 49 rate the stock a 'buy' or 'strong buy'.

Hyundai increased its Chinese sales in January-March, in a market that shrank 1.3 percent, analysts have said. [I D :nL3E8FB1U9] The South Korean firm plans to start production at new plants in China and Brazil this year, after a new factory went into production in Russia last year, but it has capped its global production capacity at 7 million vehicles, saying it doesn't want to follow Toyota, once its benchmark, which suffered from a major recall crisis after it ramped up global capacity.

In the United States, Hyundai, Ford and others have also upgraded their 2012 sales goals after an unexpectedly strong first quarter as drivers finally put the 2008-09 downturn behind them and began replacing ageing gas guzzlers.

Hyundai increased its U.S. sales by 15 percent in January-March, edging the overall market's 14 percent gain, but its market share slipped to 4.7 percent from 5.1 percent as its stretched production capacity meant it couldn't readily boost output.

Hyundai shares rose 1.75 percent on Thursday in a flat broader market.

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