RYB Education: Kindergarten in China

08/02/2018 5:00 am EST

Focus: GLOBAL

Paul Goodwin

Emerging Markets Specialist and Analyst, Cabot Wealth Network

RYB Education (RYB), with a market cap of $635 million, is a player in the crowded field of for-profit education companies in China, observes Paul Goodwin, a leading international investing expert and editor of Cabot Emerging Markets Investor.

But it isn’t trying to take on giants like TAL Education (TAL) and New Oriental Education (EDU) in a head-to-head battle for tutoring and test-preparation services.

Rather, RYB, which opened its first education center in 1998, is essentially a kindergarten company, providing age-appropriate services for kids from infancy through six years old. The company operates nearly 1,000 franchised play-and-learn centers and 212 kindergartens in over 210 Chinese cities and towns.

RYB’s play-and-learn centers for kids from birth to two years are unique among Chinese educational offerings in that they involve both the child and the family. As the name implies, the idea is to promote interaction among the whole family that will benefit the child when more structured learning begins.

Kindergarten operations offer that more structured learning, giving young pupils the skills to succeed when actual school instruction begins. Kindergartens supply more than 70% of RYB Education’s revenue via balance from the sale of school uniforms and other products.

Ultimately, the attraction of RYB is in the size of opportunity for growth via both franchising and organic growth. The total number of the company’s kindergartens and play-and-learn centers has grown from 627 in 2014 to over 1,200 today.

In the second quarter, the company acquired an 80% equity interest in four of its franchised kindergartens in Shandong province for $6.2 million and purchased two additional kindergarten facilities that are ready to be used. The company’s stringent selection, training and certification process for inclusion in the RYB network will keep quality high and enrollment figures growing.

With our Cabot Emerging Markets Timer flashing a brand-new buy signal, it’s time to start gradually increasing our exposure to the market. Accordingly, we will add a half position in RYB to the portfolio. Just be aware that RYB is thinly traded, so expect choppiness on a day-to-day basis.

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