Malaysia's top car maker, Proton Holdings Bhd, reported a 2.2% drop in quarterly profits on Tuesday and warned second-half earnings could be hit by rising costs and stiffer competition, Reuters reported.

Proton, which last month sealed a partnership with Volkswagen AG, reportedly said it would continue to launch new models and cut costs to meet changing demand. It said its UK unit Lotus, the sport-car maker, might shed up to 350 workers as part of its business restructuring.

According to Reuters, the national car manufacturer said its net profit fell to 198.9 million ringgit ($US52.3 million) in its second-quarter to end-September, from 203.4 million ringgit a year earlier, hurt by a higher yen and lower interest income.

The company reportedly said sales of Proton cars rose 7% to 97,675 units in July-September from a year earlier. Revenue rose to 2.3 billion ringgit from 1.7 billion ringgit a year ago.