South Korea's Hyundai Motor outperformed its rivals as it reported a consensus-beating 37 percent rise in quarterly profit on Thursday, fueled by strong U.S. sales of popular new models.

Once viewed as a maker of cheap cars with a poor quality record, Hyundai has been a stellar performer even during the global financial crisis, steadily increasing its global market share and nearly doubling its share price to a record high last month.

Its ability to sustain strong growth, however, will be put to the test in the coming months as Hyundai faces a strengthening won, rising competition and uneven global economic recovery. Its Japanese rivals are also quickly recovering to boost their production back to pre-earthquake levels.

Solid growth will continue in the second half but it may lose some momentum as its Japanese rivals are recovering fast and that will provide a more level playing field for Hyundai, which has benefited from its rivals' struggle in the first half, said Ko Seung-jae, a fund manager at Dream Asset in Seoul.

It's shares are unlikely to fall from the current level but don't have much upside potential either, given the balance of risk factors, he said.

Shares in Hyundai Motor have jumped 40 percent this year, outperforming the wider market's 6 percent gain. The stock fell 1.65 percent after the results, versus a 0.85 percent drop in the KOSPI.

The stock has risen 10-fold in the past 10 years.

STRONGEST CHALLENGER

Hyundai has emerged as the strongest challenger to Japanese automakers, aided by improved product quality, a previously cheaper won, affordable prices and savvy marketing strategies.

The firm, the world's fifth-largest auto maker along with affiliate Kia Motors, on Thursday reported a 2.3 trillion won ($2.2 billion) net profit for the April to June quarter, compared with a consensus forecast of 2.1 trillion won from Thomson Reuters I/B/E/S.

That was up from a 1.7 trillion won net profit a year ago and from 1.9 trillion won in the first quarter, helped by record vehicle sales.

Hyundai said its global car sales rose 13 percent to a record 1.03 million vehicles in the second quarter from a year earlier.

Hyundai warned on Thursday a strengthening won, fiscal problems in Europe and new model launches by its rivals are major threats for its growth in the second half of this year.

Overall, the global automaker environment will not be easy in the second half, Lee Won-hee, chief financial officer of Hyundai told analysts, after the results were announced. We expect Japanese carmakers to adopt a strategy to aggressively expand market share in the United States and other markets.

Nissan Motor Co on Wednesday reported a smaller-than-expected 10.4 percent fall in quarterly operating profit as it recovered from a parts shortage that hammered the industry after the March 11 earthquake in Japan.

The won is among the best performing emerging-market currencies so far this year, up 8 percent against the dollar, and investors are betting the currency has more room to gain in the coming months.

From this year, Hyundai has been reporting earnings on a consolidated basis to reflect the earnings of its affiliates, including financial operations, under new accounting rules.

Hyundai's U.S. market share jumped to 5.5 percent in the second quarter from 4.7 percent a year earlier, driven by strong sales of its Sonata sedan and Elantra compact, while its Japanese rivals suffered from production disruptions.

Those steady gains led Hyundai to raise its U.S. sales target for this year by 6 percent to 624,000 vehicles.

Hyundai also gained traction in its home market, helped by brisk sales of its new Grandeur sedan.

($1 = 1,050.00 Korean Won)

(Additional reporting by Miyoung Kim, Ju-min Park and Tae-yi Kim; Editing by Matt Driskill and Jonathan Hopfner)

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