Hyundai Motor Co's <005380.KS> strong performance in emerging economies and growing U.S. market share drove it to a record net profit in the first quarter and should cushion it from a stronger won and rising input costs.

South Korea's Hyundai was one of the few winners during an industry-wide slump last year, winning customers with a line-up of smaller, cheaper models and clever marketing that helped it consistently exceed analysts' forecasts.

It beat forecasts again on Thursday with a five-fold rise in March quarter earnings as Toyota Motor Co <7203.T> grappled with its safety and recall crisis.

Looking at such a big rise in sales, Hyundai may have succeeded in grabbing market share from Toyota, said Ryosuke Okazaki, chief investment officer of ITC Investment Partners in Tokyo.

If Hyundai can continue taking market share as Toyota lags behind, I'm sure Hyundai can continue to post strong results throughout the rest of the year.

But with the won rising, steelmakers looking to pass on higher costs and government subsidies in its lucrative home market cut, Hyundai faces a tougher time in the second half.

Hyundai's impressive earnings came as Moody's Investors Service cut Toyota's credit ratings, saying it expected low profitability at the world's largest automaker to continue and that litigation costs related to its recalls could be significant.

Toyota is set to report January-March results on May 11.

Hyundai, with affiliate Kia Motors <000270.KS> the world's fifth largest carmaker, scored record sales in the United States last month with the launch of the revamped Sonata sedan and Tucson sport utility vehicle.

NEW MODELS TO BOOST PROFIT

Hyundai said it would not respond head-on to Toyota's generous sales incentives in the U.S. market, which boosted the Japanese carmaker's sales last month.

We will increase market share with new model launches which will gather pace from the second half and strengthen cost management to shore up profitability, Hyundai said in a statement.

Hyundai scaled back U.S. sales incentives on YF Sonata and Tucson ix by 34 percent in the first quarter, driving its profit margin to 8.3 percent from 2.5 percent a year ago.

Upgraded models tend to carry higher price tags even with simple addition to functions, therefore boosting margins.

The company is due to introduce the upgraded models of compact Elantra, its best-selling foreign car, and Azera in the coming months.

COST PRESSURE

Hyundai is expected to keep showing quarterly profit growth on more capacity and a better product mix, although growth may slow a bit, said Hong Seong-yeob, head of equity management division at KB Asset Management.

Hyundai's cost structure is set to improve as more new cars are built on an integrated platform, while an increase in overseas production will ease the blow from the stronger won, analysts say.

Hyundai earned a 702.7 billion won ($634.4 million) operating profit in the quarter ended March, versus 153.8 billion won a year ago, it said on Thursday.

The results easily beat a mean forecast of 573.6 billion won from 25 analysts surveyed by Thomson Reuters I/B/E/S. Net profit jumped five-fold to a record 1.1 trillion won from a year ago.

Sales at its China unit, in which Hyundai has a 50 percent stake, grew 23 percent and profit more than doubled.

Its fully-owned India and Czech plants swung to profits, logging a 21 percent and 59 percent jump in sales, respectively.

Shares in Hyundai, which leapt to a record earlier this month, were little changed after the results, closing up 0.4 percent versus a 0.5 percent fall in the KOSPI <.KS11>.

Ahead of the results, Hyundai was forecast to post a 9 percent rise in operating profit to 2.4 trillion won this year, according to Thomson Reuters I/B/E/S. Based on 2011 earnings forecasts, it trades on a price to earnings ratio of about 8.9 times versus Toyota at 25.3 and Honda <7267.T> at 15.2 times.

Chung Mong-koo, the 71-year-old chairman of Hyundai Motor, has been making trips to the company's global assembly lines and sales networks every month in an effort to maintain the company's strong growth.

His only son and deputy chairman of the carmaker, Chung Eui-sun, tends to make presentations for its new cars in almost every auto show, in contrast to his father who largely avoids the public spotlight.

($1=1107.6 Won)

(Additional reporting by Chikafumi Hodo in TOKYO and Cheon Jong-woo in SEOUL; Editing by Jonathan Hopfner and Lincoln Feast)

India South Korea China Sun