Volkswagen AG (VOW.XE) is expected Thursday to post higher first-quarter net profit fueled by the German automaker's Chinese operations, surging demand at its Audi premium brand and a possible gain related to options for acquiring the remaining 50.1% stake in Porsche Automobil Holding SE's (PAH3.XE) sportscar business it doesn't already own.

Operating profit, however, is anticipated to come in lower due to costs to roll out new modular technology and fierce competition for its VW passenger car brand and the Spanish Seat unit amid declining demand for cars in Europe.

Earnings from Volkswagen's two Chinese joint-ventures aren't included in the automaker's operating profit line as they are accounted for at-equity.

Volkswagen's first-quarter net profit is expected to rise 26% on the year to EUR2.01 billion, according to a Dow Jones Newswires survey of 10 analysts.

Operating profit is anticipated to edge down 6.6% year-on-year to EUR2.72 billion. Revenue is expected to rise by 19% to EUR44.4 billion, thanks to rising vehicle sales.

"Given our expectation of more caution from other [automakers] regarding increasing price intensity in the [European Union], we would take a more cautious stance in the stock during first-quarter reporting," Credit Suisse analyst Arndt Ellinghorst said in a client note. He rates VW preference shares as outperform.

"While the European market keeps declining and peers suffer from weak pricing we expect VW to report a solid first quarter--even ahead of the Golf replacement," Commerzbank analyst Daniel Schwarz said in a note. He rates VW preference stock as buy. VW plans to launch a new-generation of its bestselling VW Golf model later this year.

"In Europe, VW gained market share. Pricing remains challenging but should not deteriorate significantly relative to the fourth quarter," Schwarz added.

Volkswagen's global vehicle sales rose 9.6% in the first quarter to 2.16 million, but the company acknowledged that competition in Western Europe remains fierce as demand for cars deteriorated in countries affected by tough austerity measures.

Volkswagen's dynamic sales growth in recent quarters was mainly driven by its large footprint in emerging markets such as China and Russia as well as strong gains in North America.

Investors will mainly focus on the full-year outlook and indications on pricing in China and Europe. Volkswagen's plan to forge a truck alliance between its MAN SE (MAN.XE) and Scania brands (SCV-A.SK) will also be in spotlight.

Last week, Europe's largest automaker by sales volume and revenue bought Italian motorbike maker Ducati Motor Holding SpA and approved a plan for its Audi premium brand to build a new plant in Mexico as part of its global expansion plan.

At 1152 GMT, Volkswagen's preference shares were up EUR2.65 or 2.1%, at EUR126.15, while the DAX30 blue-chip index was up 1.3%.

- By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com

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