Studio City International Holding IPO Rises 28% in NASDAQ Trading
Shares of Studio City International Holding were up 28% on Thursday after its initial public offering (IPO) at $12.50. Studio City is a Macau casino which was spun out of Melco Resorts & Entertainment. Both are controlled by Lawrence Ho.
Melco Crown owns a number of properties in Macau, including the City of Dreams, Altira Casino, and Morpheus. Melco also owns City of Dreams Manila (Philippines) and City of Dreams Mediterranean (Cyprus), while Lawrence Ho is a top applicant in the Japanese casino application process.
Studio City stock is trading on the NASDAQ under the ticker symbol “MSC”.
When Studio City opened in October 2015, the Chinese-Australian casino company Melco Crown owned the operation. Melco Crown was a partership between Lawrence Ho, son of China’s “King of Gambling” Stanley Ho, and James Packer, the son of legendary Australian media magnate Kerry Packer.
Studio City’s 2015 Grand Opening
The Studio City grand opening spared no expense. Melco paid $70 million to Martin Scorcese, Robert Deniro, Brad Pitt, and Leonardo Dicaprio to make a 15-minute film short to premiere during the grand event party. The film took place at Studio City, and had the actors playing fictionalized versions of themselves for Scorcese’s cameras.
All the actors appeared onstage with Lawrence Ho and James Packer at the grand opening. Since then, Australia-based Crown Resorts faced legal troubles with China, so Crown sold its portion of Melco Crown and Lawrence Ho renamed his company.
Early Struggles, Later Successes
Early reports were Studio City struggled coming out the blocks, because of restrictive table game decisions by Macau’s authorities. Studio City, with its Hollywood movie theme, was a hit with critics: it won Casino/Integrated Resort of the Year for 2016.
Macau was undergoing 26 months of decline at the time, with regulators being pressured by the Beijing government to diversify. Baccarat table allotments were lower than expected, causing a rare outburst by Lawrence Ho about the Macau government’s vision for the future.
Studio City Cotai
Since September 2016, the city has seen significant growth in its gaming sector, as new integrated resorts opened, which drove visitors to the former Portuguese colony. Any Chinese mainland visitors naturally would be drawn to Studio City, which has a distinct and attractive set of aesthetics. Macau’s good fortunes appear to be Studio City’s good fortunes.
Only three years later, Studio City International Holding’s IPO appears to be stronger than expected. Three major international financial institutions — Deutsche Bank (Germany), Credit Suisse (Switzerland), and Morgan Stanley (USA) — backed the Studio City IPO.
“Undervalued, But Very Risky”
In its prospectus, Seeking Alpha described the Studio City IPO as “undervalued, but very risky“. Seeking Alpha noted that much of the capital raised by the IPO would be used to buy down debt incurred by the construction of the multi-billion dollar integrated resort. That is considered a red flag in the investment world.
The debt burden was part of a temporary downward cycle which would have been hard to predict. For ten years, Macau had seen unprecedented growth, as the city’s gaming revenues swelled to seven times that of Las Vegas. When Xi Jinping’s anti-corruption crackdown hit the city in June 2014, it caused many Chinese VIP high rollers — the drivers of that growth — to stop gambling in the city temporarily.
Studio City was designed with the boom cycle in mind, but opened in a bust cycle. Melco weathered the storm and appears ready for a period of growth. Lawrence Ho is 41 now with 15 years of solid experience in the Macau gaming industry under his belt and ready for phase of expansion.
Lawrence Ho’s Casino Expansion
The City of Dreams projects around the world are only part of the plan. Mr. Ho opened Morpheus, a hotel-resort expansion of City of Dreams which will not court the VIP high roller, on the Cotai Strip. Ho claims he’ll move his headquarters to Japan, if he receives one of three casino licenses in the world’s 3rd largest economy.
As for Studio City, Lawrence Ho might use his existing relationship with officials in the Philippines and Japan to build the brand in those countries. One might see the Studio City Manila, or a Studio City expansion to (a prospective) City of Dreams Osaka in its phase two of construction. Investors on the NASDAQ do not seem to mind the high risk.
City of Dreams Cyprus
The City of Dreams Mediterranean project appears to be a huge potential windfall for Ho. Melco Resorts beat a number of top international casino companies for the lone Cypriot casino license, which includes the right to build up to four casino-resorts on the Eastern Mediterranean island. Such casinos would draw mass market gamblers from Europe, while being near to VIP high rollers from the Middle East.
Earlier this year, Ho sold his stake in Tigre de Cristal, the first land-based casino in the Russian Far East. The Macau casino mogul sold Tigre de Cristal in preparation for his Japanese casino application, both to raise cash and to disengage from a Russian casino sector that Japanese regulators might consider suspect.