Kia Motors, South Korea's No.2 automaker, said on Friday its quarterly operating profit more than tripled, but its results missed a forecast as higher overseas marketing costs offset stronger sales.
Shares in Kia trimmed losses just after the news, but stood 1.7 percent lower.
Kia, an affiliate of the country's top automaker Hyundai Motor, is expected to benefit from higher oil prices and concerns over an economic slowdown, which have hit the global auto industries, as customers seek out smaller, more fuel-efficient cars such as Kia's Morning minicar.
A softer won is likely to help the maker of the Sportage sport utility vehicle (SUV) on the operating side as it sells about 80 percent of its products abroad, although higher raw material prices will put pressure on the company, analysts said.
"As we have seen stronger sales of the Morning, Kia has models that fit to higher oil prices," said Kim Yong-soo, an auto analyst at SK Securities.
"The company plans to launch a new compact car next month, which will improve earnings in the second half."
Kia is scheduled in August to release the Forte sedan, which will have 1.6 litre or 2 litre engines.
The company expects operating profit margin for the second half to slightly exceed 3 percent, helped by a weaker won and new models, Kim Deuk-ju, director of its treasury group told reporters. First half operating margin was 2.8 percent.
For the full 2008, Kia is expected to post 255.8 billion won ($253.3 million) in net profit, up sharply from a 13.6 billion won profit last year, according to a poll of 21 brokerages by Reuters Estimates.
Kia reported a 117 billion won operating profit in the second quarter ended on June 30, below a 133 billion won profit forecast by a Reuters poll of 11 analysts.
That compared to a 37 billion won operating profit a year ago and a 102 billion won profit in the first quarter.
Sales rose 1.4 percent to 4.19 trillion won during the April-June period from a year earlier, as sales of the Morning more than tripled at home and on a weaker won.
The South Korean currency fell 8.6 percent against the dollar on average in the second quarter from a year ago and dropped 21.2 percent versus the euro, South Korean central bank data showed.
But at the same time, the weakness in the won hurt Kia's net profit as it bolstered values of foreign currency debts.
Kia posted an 86 billion won net profit during the April-June period, above a 61.7 billion won profit forecast in the poll.
That compared to a 61.4 billion won profit a year ago and 24.8 billion won loss in the first quarter of 2008.
The company's debts rose 515 billion won in the first half of the year from the end of 2007, including a boost of foreign currency debt values by 325 billion won on the softness in the local currency, Kia's Kim said.
Analysts see tough times ahead with a slowdown on the cards as Asia's fourth-largest economy weathers the fall out from the global credit crunch.
"Kia will show better earnings in the second half, but I am not too optimistic. The market environment is too bad," said Kang Sang-min, an analyst at Tong Yang Investment Bank.
Reflecting those concerns, Kia's shares lost 3.07 percent in the second quarter, underperforming an 1.7 percent fall in South Korea's benchmark KOSPI.
Kia's stock trades at about 15.55 times forecast 2008 earnings, compared to Hyundai's 8.64 times, according to Reuters data.