China’s RYB Education rises on New York Stock Exchange debut
The mainland’s early childhood education sector is expected to hit US$30bn this year, as parents are willing to spend to give their children a head start, say analysts
Shares of China’s RYB Education Institution – the first Chinese early childhood education provider to list in the US – rose 40 per cent to US$25.9 on their debut trading on the New York Stock Exchange on Wednesday from its initial offering price of US$18.50.
The company has aimed to raise US$144.3 million in its offer of 7.8 million American depositary shares (ADS). It said the proceeds raised would be used to further expand its footprint in China’s education industry.
“We are going to focus on the domestic preschool market at the moment with no expansion plans overseas yet,” Yanlai Shi, co-founder and CEO of RYB Education, told the Post in a phone interview immediately after she rang the opening bell on the NYSE.
“We have partly sacrificed our profit margin for the sake of quicker expansion during previous years,” she said. “Now that phase has ended and our investors can expect better returns.”
Though it is one of the largest providers to focus on early childhood education in China, RYB only accounted for less than 0.5 per cent of the market by revenue in 2016 due to the low concentration of large-scale providers.
It currently has over 1,000 self-operated and franchised kindergartens, as well as play-and-learn centres in 250 Chinese cities. The number is a small fraction of the more than 150,000 private kindergartens across the mainland, according to China’s Education Bureau.
But the company’s growth has been rapid, as many of the mainland’s “tiger mums” and “tiger dads” are willing to invest big time in their children's education.
Other Chinese education counters trading on the New York Stock Exchange such as New Oriental Education and TAL are trading at 47.3 times and 129.8 times respectively.
“I think a child’s education would be a major expenditure for my family,” said Sandra Yang, a 31-year-old new mother in Shanghai with a six month old daughter.
“I would consider more of the reputation of a kindergarten when choosing one for my kid, and also to experience the service myself.” she said.
China’s early childhood education market is set to reach 200 billion yuan (US$30.11 billion) in 2017, according to China Online Education Institute.
Beijing has pledged in 2010 to increase its expenditure on child education, spending nearly 3.9 trillion yuan (US$565.6 billion) on education in 2016, an increase of 7.57 per cent from 2015, according to the Ministry of Education.
Preferential tax policies and land supply have also been offered to kindergarten operators.
China’s “two-child” policy would also be a boon to the sector, as 18.5 million new babies were born in 2016 alone, with the population of children aged 0 to six now at 100.5 million this year, according to government statistics.
“Now is a very good time for RYB to get into the market, as it would then have the capital to grab more market share quickly,” said Mariana Kou, head of China education research at CLSA.
Kou said she expected consolidation in the sector, with more bigger players going public and having the ability to gobble up smaller rivals.
“The severe anxiety of the Chinese middle class, who are always worried that their children would lag behind others, is also a major factor that has been driving the growth,” said Yang, the 31-year-old mother.
Credit Suisse, Morgan Stanley, CICC and BNP Paribas are the bookrunners for the offering.