Methanex Corp T.MX

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Bumped their target by a buck to US$51.00. GLTA

Methanex Corp.

(MEOH-Q, MX-T) US$37.33 | C$45.80

Q1/21 a Slight Beat; Highest Quarterly EBITDA Since Q3/18 Event

Q1/21 adjusted EBITDA of $242mm was modestly above consensus of $236mm and in line with our forecast. Despite the slight beat, the share-price reacted negatively, which we attribute to: 1) a wider-than-normal Q1/21 discount rate; 2) somewhat cautious Q2/21 guidance; and 3) some investor apprehension regarding Geismar 3.

Impact: NEUTRAL

• Q1/21 Results: EBITDA of $242mm was up $106mm vs. Q4/20, demonstrating strong leverage to higher methanol prices. That result was achieved despite an unusually wide discount rate, which appears to reflect downward pressure on pricing in China due to atypical flows of sanctioned Iranian methanol during Q1/21.

• Methanol Prices: Methanol demand is steadily recovering, but methanol pricing remains driven by ongoing industry supply challenges. Methanex's posted prices are higher to-date in Q2/21 vs. Q1/21, with the May posted contract price in North America at its highest level since mid-2014. Argus still expects methanol prices to moderate based on improving supply, including the start-up of new U.S. capacity; however, the likely timing of that moderation has been pushed out to early-Q3/21, and we are mindful that deferred maintenance during COVID-19 may aggravate the usual industry supply volatility, resulting in a "stronger-for-longer" scenario. Despite higher posted prices, Methanex expects Q2/21 EBITDA to be "similar" vs. Q1/21, which we interpreted as management conservatism in an environment that remains somewhat volatile, but which disappointed some investors.

• Capital Allocation: Methanex's financial flexibility should meaningfully improve at current methanol prices, as it generated $103mm of free-cash-flow in Q1/21. We expect Methanex to be prudent about restarting the Geismar 3 project and see the Street as more likely to be supportive of G3 against the current macro backdrop, particularly if Methanex can bring in a partner, which it continues to pursue.

  TD Investment Conclusion

  We are attracted to Methanex's unique positioning as the methanol market leader. Although methanol prices are at cyclically strong levels currently, we estimate that Methanex's share-price is already anticipating lower prices, and is discounting an average realized price in the low-$300s/tonne, which we characterize as the low end of the normal range.