July 23 (Bloomberg) -- Hyundai Motor Co., South Korea's largest automaker, may report its biggest quarterly profit in two and a half years after a weaker won and record gasoline prices boosted overseas sales of its fuel-efficient cars.

Second-quarter net income probably rose 3.4 percent to 632 billion won ($621 million) from 611.5 billion won a year earlier, according to the median estimate in a Bloomberg News survey of seven analysts. Sales likely gained 12 percent to 9 trillion won.

The automaker sold 16 percent more vehicles as $4 a gallon gasoline spurred U.S. drivers to opt for Elantra compact cars and Sonata sedans over General Motors Corp. trucks. The won's 8.7 percent decline against the dollar also helped Hyundai compete with Toyota Motor Corp. and Honda Motor Co., which are hurt by a rise in the yen.

``Hyundai's strength in small cars is giving it an edge over global peers,'' said Kim Sang Hoon, an analyst at Korea Investment Trust Management Co., which manages about $14 billion of equity assets including Hyundai stock. ``The won is also boosting earnings and providing price competitiveness abroad.''

The Seoul-based carmaker is due to report earnings at 2:00 p.m. on July 24. Affiliate Kia Motors Corp. will release its results at 10:30 a.m. the following day.

Hyundai's operating profit, or sales minus the cost of goods sold and administrative expenses, likely rose 21 percent to 691.1 billion won, according to the survey. Net income growth may trail operating profit because of currency investments. The automaker had a 138 billion won loss from derivatives in the first quarter from wrong-way bets on the euro, which gained 15 percent against the won in the period.

Company spokesman Jake Jang declined to comment on the earnings estimates.

Overseas Growth

Hyundai sold 756,466 vehicles worldwide in the period, with overseas growth offsetting a 0.6 percent domestic decline, the company said in a statement. Sales in South Korea, Hyundai's biggest market, fell to 160,277 as a slowing economy damped demand. Overseas sales accounted for 58 percent of Hyundai's revenue last year.

Second-quarter sales in the U.S., Hyundai's biggest overseas market, rose 2.5 percent to 135,728. Industrywide vehicle sales slumped 12 percent, with sales of GM and Toyota trucks each plunging at least 19 percent. Oil prices have risen more than 70 percent in the past year.

Hyundai boosted China sales 58 percent and India sales 37 percent after expanding its production capacity in the world's two fastest-growing major auto markets. The company's total overseas sales jumped 21 percent to 596,189.

Emerging Markets

``Emerging markets are the one area that's seeing growth,'' said Chung Sung Yop, a Seoul-based analyst at Daiwa Securities Co. ``Hyundai's strength in these markets will help it weather any setbacks in the U.S. and other developed markets.''

Chung is one of 26 analysts tracked by Bloomberg who advises buying Hyundai stock. Six have `hold' ratings and one says `sell'.

The automaker gained 1.1 percent to 72,300 won at the close of trading in Seoul. It's little changed this year. Toyota, the world's second-biggest carmaker, has dropped 19 percent in Tokyo. GM has plunged more than 40 percent.

The won weakened against the dollar compared with the same period a year ago, boosting the value of overseas sales. The yen was about 16 percent stronger, hurting the profits of Japanese carmakers.

Hyundai will raise vehicle prices about 2 percent next month because of higher costs for steel and other materials. Posco, the automaker's biggest steel supplier, has raised sheet prices three times this year, boosting the benchmark hot-rolled coil price 63 percent because of rising iron-ore and coal costs.

``The rise in material costs will fully be reflected from the second half, hurting profit,'' said Song Sang Hoon, an analyst for Seoul-based Kyobo Securities Co., who rates Hyundai `buy'. The carmaker's sales may also be hit by strikes, he added. Workers have staged stoppages this month seeking pay rises.

Kia Mornings

Kia, South Korea's second-biggest carmaker and an affiliate of Hyundai Motor, probably increased profit 26 percent after tax breaks and higher fuel prices boosted domestic sales of Morning minicars.

Second-quarter net income likely rose to 77.3 billion won from 61.4 billion won a year earlier, according to the median estimate in a survey of seven analysts. Sales were probably little changed at 4.16 trillion won.

South Korean sales of Morning minicars more than tripled in the period to 21,541, offsetting slumping demand for Sorento and Sportage sports utility vehicles.

Operating profit may have jumped more than fourfold to 152 billion won, according to the survey. Kia spokeswoman Pamela Munoz in Seoul declined to comment on the earnings estimates.

The following table shows the median forecast for Hyundai Motor's second-quarter earnings compared with the actual results from a year earlier. The figures are in billions of won.

                   Q2 2008            Q2 2007     Change
Sales              9,004.0            8,026.9     +12%
Operating Profit     691.1              572.8     +21%
Net Income           632.0              611.5     +3.4%

The following table shows the median forecast for Kia Motors' second-quarter earnings compared with the actual results from a year earlier. The figures are in billions of won. Numbers in parentheses are losses.

                   Q2 2008          Q2 2007     Change
Sales              4,157.6        4,136.4        0.5%
Operating Profit     152.0           37.0        311%
Net Income           77.3            61.4         26%

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

Last Updated: July 23, 2008 03:45 EDT