Methanex Corp T.MX

RBC

[retiredcf]

October 28, 2021

Outperform

NASDAQ: MEOH; USD 45.04; TSX: MX

Price Target USD 60.00

Methanex Corporation

First Glance: Q3/21 results lower than expected, but Q4/21 looks really strong
Our view: modestly positive

First impression

Q3/21 results lower than expected. Methanex’s Q3/21 Adjusted EBITDA of $264 million was below our estimate of $285 million and consensus of $281 million. Adjusted EPS of $1.29 was in line with our forecast of $1.30. The variance from our Adjusted EBITDA estimate was largely due to lower-than- expected realized methanol prices ($390/MT vs. our estimate of $395/ MT) and lower proportional sales of Methanex-produced methanol (1.44 million MT vs. our estimate of 1.54 million MT). Please refer to Exhibit 1 for additional details.

Q3/21 methanol production was slightly below our forecast. Production for Q3/21 was 1.48 million MT compared to our forecast of 1.54 MT and Q2/21’s 1.51 million MT. Production in the quarter in Chile, New Zealand (temporary idling of one facility), and the U.S. (Hurricane Ida) was modestly lower than we had forecast. In early October, the company restarted production at the Chile IV plant, which had been idled for the last 18 months.

Q4/21 methanol prices materially higher than Q3/21. Management’s outlook for the methanol industry is positive, and we believe that additional industry supply will be needed to meet the growing methanol demand over the coming years. Methanex also released its North American and Asia Pacific non-discounted prices for November of $692/MT (up 14% from $609/MT in October and up 24% from Q3) and $600/MT (up 18% from $510/MT in October and up 38% from Q3), respectively.

Well capitalized to complete G3 and share buybacks. Methanex ended the quarter with $932 million in cash, $900 million of undrawn backup liquidity, and a further $145 million from the pending sale of a 40% interest in Waterfront Shipping to Mitsui. The company recently restarted construction activities at the 1.8 million MT per year Geismar 3 development, and management estimates that the remaining capex to complete the project in late 2023 or early 2024 is unchanged at $800– 900 million (before capitalized interest). The company recently announced a NCIB for 5% (~3.81 million shares) of the shares outstanding, valid until September 23, 2022. Methanex repurchased 85,607 common shares during the quarter for $4 million.

Conference call: Thursday, October 28, at 11:00AM ET. The dial-in number is 1-800-806-5484 (passcode 1196073#). We expect investors to focus on management’s outlook for methanol supply/demand, natural gas availability, and the G3 development, as the company restarted construction in October 2021.