SEOUL (Reuters) -- Hyundai Motor Co. said on Monday quarterly profit rose a better-than-expected 86 percent, boosted by exports of its more profitable XG luxury sedans and Sante Fe sport utility vehicles.
Analysts expect profits to rise further in the second half as an expected recovery in the domestic economy adds to robust exports, particularly to Europe where the strong euro has made Korean imports more competitive.
"The results were better than expected," said Cho Soo-Hong, an auto analyst at Dongbu Securities. "Some concerns linger due to the rigid labour climate, but fundamentals are still sound."
Exports account for around 60 percent of Hyundai's annual production and earnings. Hyundai has invested heavily to improve the quality of its cars, launching new models such as the New EF Sonata mid-sized sedan and the Santa Fe, which produce more profit per vehicle than its staple Accent sub-compact.
A recent strike that cost Hyundai $1.2 billion in lost output is not expected to dent profits much as it whittled away inventories and costs fell while workers were unpaid. But analysts are concerned about the longer-term impact of the agreed pay hike and of a stronger South Korean currency on exports.
"We don't have very bright expectations for a drastic improvement in the domestic sales climate, but if exports do at least as well as last year then there would be no need for a discount in Hyundai shares", said Chung Doo-sun, a fund manager at CJ Investment Trust Management.
Hyundai, 10-percent owned by DaimlerChrysler AG, reported a net profit of 570.4 billion won ($483 million) for the second quarter ended June 30, compared with 306.8 billion a year ago, according to Reuters calculations. Sales were 6.58 trillion won, up six percent from 6.2 trillion.
The results were above the average analyst net profit forecast for 454 billion won, but sales were below expectations for 6.74 trillion won. The high sales of the profit-rich new models helped explain the stronger than expected result, analysts said.
In the second quarter of 2002, Hyundai's profits were depressed because it had to make provisions of more than 200 billion won to cover tighter EU environmental rules and over 500 billion won for warranty pledges in the U.S. market. Warranty provisions in the first half of 2003 were 0.2 percent of sales, down from 0.7 percent a year earlier.
The auto maker is betting on exports to drive growth this year in the wake of weak demand at home, where the economy is struggling to emerge from a recession in the first half.
Hyundai saw exports during the first half of this year rise 30 percent from a year ago to 627,728 vehicles.
"Even though demand was sluggish in the local market, overseas exports were dramatic due to rising sales of higher-value-added cars like the XG sedan and the Santa Fe sport utility vehicle," said Hyundai Motor spokesman Jake Jang.
The Santa Fe sells for a minimum $17,549 and the luxury XG sedan sells for $23,999, well above the $9,999 for the sub-compact Accent and the $15,499 for the mid-sized Sonata.
First-half exports to Europe rose 34.5 percent from a year ago to 141,000 vehicles, while shipments to North America rose 17.7 percent to 266,000 vehicles, Hyundai said.
LOWER INCENTIVES THAN DETROIT
With General Motors, Ford Motor Co. and DaimlerChrysler driving a fierce price war in the U.S. market, Hyundai's spending on incentives such as cash rebates and other perks stood at about $1,500 per car in the first half, about the same as the year-ago period, according to Hyundai Motor America.
Rival Toyota Motor Corp. was offering $1,132 a vehicle in July, according to research firm Autodata, although that was still below the "Big Three" average of $4,000.
A Hyundai Motor official said it raised the average selling price of cars for exports, easing the impact of a stronger won. The average won/dollar rate in the first half strengthened to 1,206 from 1,296 a year ago.
In contrast, domestic sales fell 11 percent to 342,914 vehicles as South Korea slipped into its first recession in five years on North Korean nuclear worries and weaker household spending after a crackdown on credit card debts.