Why Studio City Is 10% Higher This Week

What happened

Shares of Studio City International (NYSE:MSC) are running 10.6% higher this week compared to where they closed last Friday, according to data from S&P Global Market Intelligence, on no company-specific news, though the entire Chinese gambling market has been buoyed by Beijing relaxing its tight COVID-19 travel restrictions.

Studio City is a Hong Kong-based casino operator that operates in the Cotai district of Macao, the only place in China where it is legal to gamble. The casino industry there has been crushed due to the government's zero-tolerance policies toward COVID. With the government easing up on its edicts, there's hope Macao will be able to recover.

Image source: Getty Images.

So what

At one time Macao was the largest gambling location in the world, but since the pandemic, and because of Beijing's strict travel restrictions, gambling has come to a virtual end in the city. Studio City reported third-quarter gross gaming revenue (GGR) last month of just $20.6 million, compared to $85 million last year. In the third quarter of 2019, Studio City had generated GGR of $345 million.

To put that in perspective, through the first 11 months of 2022, all Macao casinos have generated GGR of just 38 billion patacas, which is the local Macao currency, or the equivalent of just $374 million. So what casinos produced in almost one year, Studio City used to generate by itself in one quarter.

Now what

Studio City Casino operates in Macao under the concession (or license) granted by the government to Melco Resorts & Entertainment. All six concessions that had been issued previously to casino operators under a 20-year grant were re-awarded to them, though only for 10 years this time.

While there had initially been some concern early on whether all the operators would win renewal, particularly the U.S.-based casinos, due to growing trade tensions with China, the collapse of the gambling market in the wake of the pandemic almost assured everyone's concession would be restored because of the billions of dollars they had invested in making Macao a worldwide leader in gambling.

After the licenses had been provisionally secured at the end of November, Studio City's stock began to climb and today is 165% above where it was trading one month ago.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.