RPT-PREVIEW-Hyundai Q2 seen up on sales, won; outlook tough

(This is a repeat of an earlier story ahead of the company's earnings announcement)

* What: Hyundai Motor, Kia Q2 earnings

* When: Hyundai July 24, Kia July 25

* Profits seen up on higher sales, outlook tough

By Cheon Jong-woo

SEOUL, July 18 (Reuters) - Hyundai Motor Co (005380.KS) is expected to report a small rise in quarterly profits thanks to higher sales and a weak currency, but South Korea's top auto maker faces a tough second half due to rising oil and slowing domestic demand.

The world's No.5 auto maker, along with its affiliate Kia Motors Corp (000270.KS), is still set to post higher full-year profits on strong overseas demand for smaller cars, analysts said.

"Hyundai is set to post solid earnings for the second quarter on the weaker won and firmer sales, but the quarter is likely to be the peak," said Choi Dae-sik, an auto analyst at CJ Investment & Securities.

"A slowdown in Hyundai's growth will be inevitable in the second half, especially for higher-end models (at home)."

Hyundai controls about half the South Korean market, and Hyundai and Kia derive around 60 percent of revenues from their home market.

Earlier this month, the maker of the Sonata sedan cut its local sales target for 2008 by 6 percent, saying higher oil prices were denting consumer sentiment in Asia's fourth-largest economy. It has also raised prices to help offset higher prices for raw materials, particularly steel.

Hyundai is expected to post a net profit of 632.2 billion won ($615.7 million) for the second quarter ended on June 30, a Reuters poll of 11 analysts showed.

That would be up 3.4 percent on last year's 611.5 billion won profit and compare with 392.7 billion won in the previous three months.

Its second-quarter operating profit is seen at 694.2 billion won, versus 572.8 billion won a year earlier.

Sales are expected to rise 11.5 percent to 8.95 trillion won as its smaller sedans, such as the Elantra, lure more customers amid rising oil prices and helped by a softer won.

The South Korean currency fell 8.6 percent against the dollar KRW= on average in the second quarter from a year earlier and dropped 21.2 percent against the euro EURKRW=R, South Korean central bank data showed.

A weaker won will help not only Hyundai but also Kia show better sales abroad and report strong earnings for the year, while Japanese rivals such as Toyota Motors Corp (7203.T) are facing a tougher time due to the stronger yen JPY=.

Concerns over the global credit crunch and the resulting economic slowdown have put pressure on the global auto industries, but Hyundai and Kia may benefit from those issues as more consumers look for smaller cars.

For 2008, Hyundai is expected to post a 31 percent jump in net profit to 2.19 trillion won, according to a poll of 24 brokerages by Reuters Estimates.

Kia is expected to post a 133 billion won in operating profit during the second quarter, a Reuters poll of 11 analysts showed, compared to a 37 billion won profit a year ago.

But the softer won is a double-edged sword for Hyundai and Kia as the weakness in the currency boosts values of foreign currency debts and raw material prices.

Hyundai reported a 138 billion won loss related to currency derivatives used to mitigate foreign debt in the first quarter.

Kia's second-quarter net profit is likely to be stable at 61.7 billion won from a 61.4 billion won a year ago, despite a strong jump in operating profit, as the weaker won boosts the value of foreign currency debts.

Earlier in July, Hyundai's unionised workers staged partial strikes for four days so far over a wage deal, which the company estimates costed it 238.7 billion won in lost output, although those losses are usually made up later.

Shares in Hyundai, valued at around $14.6 billion, fell 10 percent in the quarter, underperforming an 1.7 percent fall in the wider market .

Hyundai's stock trades at about 8.2 times forecast 2008 earnings, compared to Toyota's 10.6 times and Honda Motor Co Ltd's (7267.T) 11.9 times, according to Reuters data. ($1=1026.7 Won) (Editing by Keiron Henderson and Lincoln Feast)