US-listed kindergarten firm RYB sees profit soar as it battles child abuse claims in China

PUBLISHED : Thursday, 30 November, 2017, 3:35pm
UPDATED : Thursday, 30 November, 2017, 3:35pm

RYB Education, the US-listed kindergarten operator at the heart of a child abuse scandal that has rocked China, said its third-quarter profit had climbed 72.7 per cent to reach US$3.8 million.

Net revenues were up 39 per cent at US$37.4 million during the three months to September 30, compared with US$26.9 million last year, while gross profit doubled to US$9 million, RYB reported on Thursday.

More than 200,000 students were studying at the company’s kindergartens as of September 30.

One of the largest providers of early childhood education in China with 209 branches and over 900 franchised play-and-learn centres, RYB made its debut on the New York Stock Exchange in late September, rising more than 40 per cent at the time.

Less than two months later, however, allegations emerged that some children at one of its Beijing branches had needle marks on their skin, had been drugged by staff and sexually abused. An investigation was launched, and a 22-year-old teacher is now in custody for allegedly using knitting needles to “discipline” children at a kindergarten in Beijing.

RYB Education kindergarten under investigation over child abuse claims

Then on Wednesday police in the city of Changzhou, in Hebei province, said they had received reports from parents that their children had suffered abuse at an RYB kindergarten there.

According to a police statement, that kindergarten has been closed while the case is investigated.

“The company also understands that there have been additional parent complaints regarding other RYB-branded kindergartens and will continue to cooperate fully with the police and other authorities in this matter,” RYB said in a statement on their website on Wednesday.

After news of the scandal first broke, RYB’s shares plunged more than 40 per cent in New York trading on Friday to US$16.5, below their September IPO price of US$18.50. Even an announcement by the company that it planned a US$50 million buy-back of its own stock over the next 12 months failed to stem the decline.

The shares bounced back on November 28, adding more than 13.5 per cent, after police said no evidence of molestation or drugging were found during a review of 113 hours of surveillance footage.

But RYB tumbled 8 per cent on Wednesday after news of the new allegations in Hebei.

There is huge demand for kindergartens in China, which is home to 100 million children aged six and under, according to government statistics. That makes the sector a big draw for investors and funds.

However, a combination of low wages and the intensive demands of the job has led to a mismatch between the demand for trained professional teachers and the reality, which is that most teaching posts are filled by young women in their early 20s with next to no childcare training.

Some analysts believe the company will emerge unscathed from the scandal.

“Even though now RYB might have to bear a heavy moral burden after the child abuse accusations, these accusations are very unlikely to affect their future performance in the market as their fundamentals still look good,” said Shen Meng, executive director with investment bank Chanson & Co.

“When new social events emerge to divert people’s attention from the scandal, RYB will be doing even better,” he said.