But there is one bright spot today in the form of Macau casino-hotel owner Studio City (MSC), which priced its 28.75 mln share IPO at the high end of the expected price range. Specifically, its deal came in at $12.50 versus the $10.50-$12.50 range, priming the launch to generate total gross proceeds of $359.4 mln.
One factor that may have worked in MSC's factor is that stocks representing the casino sector -- particularly in the higher-growth Macau region -- are somewhat rare in the IPO market, meaning that there is a scarcity effect in play to support interest around MSC. Another positive for the company is its specific location in Macau. In fact, the Studio City resort is the only property directly adjacent to the Lotus Bridge immigration checkpoint and is one of the few dedicated Cotai hotel-casino resort stops planned on the Macau Light Rapid Transit Line. The Lotus Bridge connects Cotai with Hengqin Island in Zhuhai, China, a designated special economic district in China undergoing significant business and infrastructure development.
All in all, its pricing this morning is impressive, given the current market conditions and tepid demand for other deals launching this week. The IPO was led by Deutsche Bank, Credit Suisse, and Morgan Stanley. Shares opened for trading this morning on the NYSE at $16.50.
MSC is a gaming, retail, and entertainment resort located in Cotai, Macau. Studio City Casino is operated by the Gaming Operator, one of the subsidiaries of Melco Resorts (MLCO) and a holder of a gaming sub-concession, and MSC operates the non-gaming businesses of Studio City. The casino has 250 mass market gaming tables and approximately 970 gaming machines, which it believes provide higher margins and attractive long-term growth opportunities. The mass market focus of Studio City Casino is complemented with junket and premium direct VIP rolling chip operations, which include 45 VIP rolling chip tables.
Studio City features approximately 1,600 luxury hotel rooms, a variety of food and beverage establishments and approximately 35,000 square meters (approximately 377,000 square feet) of complementary retail space. The resort also includes the world’s first figure-8 Ferris wheel, a Warner Bros.-themed family entertainment center, a 4-D Batman flight simulator, an exclusive night club, and a 5,000-seat live performance arena.
MSC has entered into arrangements with certain subsidiaries of Melco Resorts, its controlling shareholder, for management of the Studio City Casino under certain conduct management and shared services arrangements. Under the Management and Shared Services Arrangements, MSC receives services from the Master Service Providers, including operational management services and general corporate services, such as payroll, human resources, information technology, marketing, accounting, and legal services. MSC also provides certain shared administrative services and shuttle bus transportation services to Studio City Casino.
In terms of its growth strategy, MSC intends to continue focusing on the mass market segment, which consists of both mass market table games and gaming machines for primarily cash stakes. Mass market gaming revenues have grown significantly in recent years and amounted to $13.0 bln in 2016 and $14.4 bln in 2017, reflecting a year/year increase of 10.4%. It also will look to complement its mass market business with VIP rolling chip operations, which are for higher stakes. Lastly, it will seek to drive visitation and revenue growth through non-gaming attractions.
Looking at the financials, total revenue for the six months ended June 30, 2018 increased by 11.2% to $282.2 mln. The increase in total revenues was primarily due to enhanced performance in the mass market table games and VIP rolling chip operations as a result of the continuous ramp-up of Studio City.
Operating expenses dropped slightly to $217.5 mln from $222.3 mln. Food and beverage, entertainment, mall, and retail expenses decreased to $40.9 mln from $42.1 mln, and General Administrative costs -- its largest expense -- was steady at $65.9 mln. As a result of the jump in revenue and drop in operating expenses, MSC's operating income surged by 105% to $64.7 mln.
Net cash flow from operating activities also climbed by 216% to $73.3 mln. Finally, the company shows cash and equivalents of $417.8 mln as of June 30, 2018 and a mountain of long term debt at $2.0 bln.