Saturday, 2 December 2017

RYB Education Resilient Despite Scandal

A guard closes the gate at RYB Education in Beijing (brown building)
We understand everyone needs to make money, but should a company that owns 209 kindergartens and more than 900 franchised play-and-learn centres be listed on the New York Stock Exchange?

It turns out RYB Education is one of the largest providers of early childhood in China and it was hit by a scandal last month when there were allegations and complaints of child abuse.

Parents alleged that some children had been found to have needle marks on their bodies, they were drugged and sexually abused.

Allegations of bodily harm and sex abuse plagued RYB
After an initial investigation, Beijing police said one teacher at the kindergarten had pricked children with a sewing needle as a disciplinary measure, while claims of children being drugged and sexually molested were fabricated by parents.

Nevertheless, RYB's shares plunged 38 percent to US$16.45 last Friday, down from its initial public offering of US$18.50 in September. It had hit a high of US$31.14 on October 2, three days after its first day of trading.

Analysts believe RYB stocks are resilient and will emerge unscathed from the scandal -- its shares closed at US$20.33 on Wednesday, rebounding 24 percent from last Friday's sharp fall.

"Even though RYB may have to bear a heavy moral burden after the child abuse accusations, its future performance in the market is unlikely to be affected because its fundamentals are still good," said Shen Meng, a director with investment bank Chanson & Co. "When new social events emerge to divert people's attention from the scandal, RYB will do even better."

RYB shares on the NYSE seem resilient despite the scandal
Should schools, particularly early education ones, be run like corporations? Sounds contradictory but perhaps the company's sheer size makes it able to invest in lots of resources, though it makes effective management of all of them very difficult.

Perhaps the good thing in all of this is that because RYB is a public company, it has no choice but to allow greater scrutiny. If it is smart, RYB will set up the necessary mechanisms in place to prevent further abuse and manage its branches and franchises more closely to ensure quality. After all, early childhood education is not something that should be messed around with.

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