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Toyota says not optimistic on China profitability; books record Q1 earnings

A visitor walks between Toyota Motor Corp's cars displayed at the company's showroom in Tokyo, Japan, August 4, 2015. REUTERS/Yuya Shino

By Minami Funakoshi

TOKYO (Reuters) - Toyota Motor Corp said it "can't be optimistic" about profitability in China, the world's biggest auto market, where slowing growth is forcing the Japanese manufacturer to cut prices and offer buying incentives to keep up with rivals.

Toyota, which on Tuesday reported record first-quarter net profit for the third consecutive year, enjoyed rising China sales but price wars were sapping profit, company officials said at an earnings briefing.

China auto sales fell each month in the quarter as economic growth crawls at its slowest pace in 25 years, draining consumer sentiment. Analysts expect a stock market crash from mid-June to have a knock-on effect and further drag on vehicle sales.

Japanese automakers are widely expected to fare better than rivals due in part to sales of new sports utility vehicles (SUVs). But at Toyota, price competition has particularly hit its RAV4 as car makers seek to capitalise on a vogue for SUVs.

"In April-June, vehicle sales have progressed firmly but as for profitability, we can't be optimistic," said Managing Officer Tetsuya Otake.

Spokesman Hiroshi Hashimoto called the market "extremely hard" and added "there isn't much profitability in China."

For April-June, Toyota said net profit rose 10 percent to 646.4 billion yen ($5.21 billion), beating the 607.5 billion yen average estimate of 11 analysts polled by Thomson Reuters.

Operating profit rose 9.1 percent to 756 billion yen on revenue that grew 9.3 percent to 6.99 trillion yen.

The automaker attributed the earnings rise to general cost-cutting and currency gains from a strong U.S. dollar, which increased the value of income when converted into yen.

Those factors made up for a 0.4 percent decline in global retail sales at 2.5 million vehicles. Toyota said the fall was due to economic slowdown in Southeast Asia and lower sales of mini-cars in Japan, which were recently subject to a tax hike.

Toyota left its net profit forecast for the year through March at 2.25 trillion yen, and raised its revenue estimate by 1 percent to reflect increased currency gains. It also raised its global sales view by 0.6 percent to 8.95 million vehicles on improvement in the Japanese and North American markets.

Toyota's shares ended down 1.0 percent ahead of the earnings results, while the broader Tokyo market closed flat.

($1 = 123.9600 yen)

(Reporting by Minami Funakoshi; Editing by Chang-Ran Kim and Christopher Cushing)