* Hyundai Motor shares hit record high
* Popular compact models, robust global sales help
* Risks of possible forex swings, uncertain economic outlook (For other Reuters BUY OR SELL stories, click [BUYSELL/])
By Jungyoun Park
SEOUL, Aug 25 (Reuters) - Shares in Hyundai Motor Co (005380.KS) and affiliate Kia Motors (000270.KS) have more than doubled this year, easily outperforming their Japanese peers, thanks to surprisingly strong profits and growing market share.
But the reasons to buy the stocks could be starting to fade as government stimulus efforts end, the won strengthens and share prices exceed analysts' targets.
Some analysts argue the momentum in Hyundai's overseas sales, up 67 percent in January-July from a year ago, should continue into the second half.
"There is no question about us remining overweight on Hyundai through this year," said Kang Sang-min, a Prudential Investment & Securities analyst. "Sales in developed markets including the United States will be strong, helped further by new model launches. Robust performance in China will not die down either."
The mid-sized sedan Sonata and compact Elantra have been top Hyundai sellers in the U.S., boosted by incentives, including the company's offer to take back cars if buyers lose their jobs.
Hyundai and Kia, which overtook Ford Motor Co (F.N) as the the world's no. 4 automaker by sales in the first half, control over 7 percent of the U.S. auto market. Hyundai sales there in July alone jumped 12 percent from a year ago.
In China, Hyundai says it has moved into fourth place from seventh last year, pushing ahead of Toyota, Honda and Nissan.
"As global consumers increasingly prefer smaller models for economic reasons and fuel efficiency, South Korean automakers' good value, compact models are rapidly winning favour," said Kevin Lee, an analyst at Goodmorning Shinhan Securities.
Hyundai's second quarter profits jumped by almost half to a record high, while Kia posted its biggest profit in 5-½ years. [ID:nSEF000293] [ID:nSEO254662]
Analysts have raised their full year forecasts by 9.4 percent over the past 30 days and now, on average, expect 2009 earnings per share of 7,058 won, according to Thomson Reuters data.
With rivals expected to post losses or minimal profits this year, Hyundai's valuations remain reasonable, some analysts say.
Hyundai's price to book value based on estimated 2009 earnings was 1.2, versus Honda's 1.34 and Toyota's 1.26, according to recent Goldman Sachs reports. Hyundai's fiscal year is to December, while Honda and Toyota's run until March 2010.
But Hyundai's share price -- based on the closing price on Monday of 107,500 won -- was 7.5 percent above the median target price of 100,000 won, according to Thomson Reuters data.
At that level, Hyundai has risen 172 percent year to date, compared to 43 percent in the benchmark KOSPI .KS11 index.
By contrast, Toyota has risen about 40 percent and Honda Motor 60 percent in the same period.
Concerns are emerging the surge could be tailing off with a recovering won KRW=, the lack of clear signs of a certain economic recovery and disappearing incentives for car buyers.
"Our stance is, it is probably time to lock in profits," said Thomas Inho Choi, head of equities at UBS Hana Asset Management Co Ltd.
"How the economies, most notably that of the United States, will fare in the second half is another big question," he said, calling the latest won strength another risk.
The won, whose tumble last year was such a boon for exporters, is now looking healthier and has risen about 5 percent against the dollar since mid-July.
Governments are also likely to cut back on stimulus packages.
The United States suspended its popular "cash for clunkers" auto rebates on Monday. [ID:nN24171730]
"Aggressive measures taken by governments, including both South Korea and China, had encouraged consumers to buy cars earlier than intended," said Song Sang-hoon, a senior analyst at Kyobo Securities. "Future demand may have already been used up." (Editing by Jonathan Thatcher and Lincoln Feast)