Hyundai beats Europe slump; sees global auto demand growth slowing next year

(Reuters) - Hyundai Motor Co increased its quarterly net profit by 13% to $2 billion, squeezing overseas capacity to keep sales going despite damaging labour strikes at home.

The South Korean firm, which with affiliate Kia Motors is the world’s fifth-biggest car maker, has outperformed in an industry battered by Europe’s debt crisis - even Volkswagen and Daimler are feeling the pinch - but investors are concerned about a go-slow strategy on expanding capacity.

Hyundai has not announced plans for a new plant for at least two years, as it focuses on brand and quality rather than aggressively chasing market share - but this has left it short of cars to sell into a recovering U.S. market, where Japanese rivals have muscled back in, as well as in emerging markets.

In a summary note this week, Standard & Poor’s forecast Hyundai and Kia would lose global market share by 2014.

“With its growth rate moderating on limited capacity and the global economy weakening, it’ll be a challenge for Hyundai to come up with a magic growth formula,” said Ohm Joon-o, a fund manager at Kiwoom Asset Management, which holds Hyundai stock.

On Thursday, hours after a bleak day for European brands - with Ford announcing a plant closure, Peugeot accepting state aid and Volkswagen posting a big drop in profits - Hyundai said its July-September net profit rose to 2.17 trillion won, a touch above market forecasts and up on last year’s 1.92 trillion won.

Hyundai, led by founding family member Chung Mong-koo, bucked the industry slump in Europe and drove up sales in China as Japanese rivals were hit by a popular backlash in a dispute over islands in the East China Sea. Chief Financial Officer Lee Won-hee acknowledged Hyundai benefited from the Japan-China dispute, and would this year report higher-than-expected sales in the world’s biggest autos market.

“Hyundai will return to record earnings in the current quarter,” said Kim Seung-hwan, analyst at Golden Bridge Investment & Securities. “But the problem is next year. Investors are concerned that Hyundai’s growth momentum will stall, which is reflected in the recent share price slump.”

Hyundai shares closed up 3.9% on Thursday - their biggest one-day gain in 6 weeks - but have slumped 10% this month, underperforming the KOSPI index and Japanese rivals Honda Motor Co Ltd, Nissan Motor Co Ltd and Toyota Motor Corp, as investors fret over the group’s long-term growth strategy.

Hyundai expects the global autos market will grow at 3.6% next year, slowing from an expected 5.1% this year. The European market will shrink by 8% this year, b u t by less than 2% next year, it said. Hyundai last month slashed its European targets for this year and next, in no way immune from the chill winds of the region’s debt crisis.

Overall, Lee said Hyundai would beat its global sales target of 4.29 million vehicles this year.