After aborting plans for a domestic IPO in 2022, China's largest Chinese-style fast-food chain has turned its sights to more globally focused Hong Kong



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<h4>Key Takeaways:</h4>



<ul>
<li>LXJ has applied a third time to list in Hong Kong, reporting revenue of 4.58 billion yuan and a profit of 371 million yuan in the first eight months of last year</li>



<li>The chicken chain operator ranks first in China for Chinese-style fast-food, yet commands just 0.9% of the market</li>
</ul>



KFC may rule the China roost when it comes to chicken fast food restaurants, with more than 12,000 stores nationwide. But in reality, the Chinese fast-food market is still quite fragmented, especially among chains serving more Chinese-style dishes.



Such restaurants currently total over 1.7 million, with no real king of the roost. But as the largest chick in that space, LXJ International Holdings Ltd. (LXJ) is aiming to raise some big bucks to consolidate its position through a public listing. This month, the company renewed its plan to list in Hong Kong, its third such attempt, hoping to succeed in one of the city's hottest IPO markets in years. CICC and Haitong International are joint sponsors of the deal, showing the listing is squarely aimed at Asian investors who are more likely familiar with LXJ's story.



LXJ was originally dubbed Feixi Old Hens at the time of its founding by army veteran Shu Congxuan in 2003. Shu's actual journey began two decades earlier in 1982 when he invested his 1,800 yuan ($258) wedding fund – then a princely sum equal to more than a year's salary – to raise 1,000 free-range chickens in his hometown of Feixi in East China's Anhui province. That venture would lay the foundation for what would go on to become the Feixi Old Hens chain.



The restaurant's signature dish, Feixi Old Hen soup, quickly became a runaway hit, fueling the chain's growth. While the Feixi Old Hens name resonated locally in Anhui, it proved less popular as Shu sought to take his chain nationwide. That prompted him to rebrand his baby to its current name, Laoxiangji, meaning &#34;hometown chicken,&#34; in 2012, as he aimed to replicate his success nationwide. After two decades at the helm, Shu handed the reins of his empire to his son, Shu Xiaolong, in November 2023.



<h4>Stunt king</h4>



Shu Congxuan's unconventional marketing savvy has become legendary in China's business community, and was pivotal to LXJ ‘s early success. Embracing digital trends, he became the face of his brand through viral stunts that resonated with audiences. Those included theatrically tearing up a staff petition for a cut to his pay, staging a 1-billion-yuan strategy announcement in a muddy village lot, and making a comedic appearance on a stand-up comedy show, to name a few. Such stunts were often tied to issues at the time, linking the brand's identity and business strengths with public sentiment.



According to its latest listing document, LXJ ‘s profit has risen steadily over the last three years. It grew from 252 million yuan ($36 million) in 2022 to 409 million yuan in 2024, though the growth rate slowed from 49% in 2023 to just 8.8% in 2024. The faster growth in 2023 was driven primarily by strong performance for the company's self-operated stores. In 2024, a main driver was its expansion into franchising. Its revenue for the first eight months of last year rose 11% year-on-year to 4.58 billion yuan. Its profit for that period continued to climb as well, albeit slowly, rising 12% to 371 million yuan.



<h4>Growth through franchising</h4>



LXJ was a traditional kind of chick, at least when it came to business, using a model of company-owned stores for its first 17 years, before trying its first franchised outlet in 2020. It has aggressively developed its franchise network since then, and such outlets accounted for 733 locations as of last August, not far behind its 925 self-operated stores. Its strategy hinges on a &#34;dual-engine&#34; approach of maintaining quality through company stores, while leveraging franchising for rapid, capital-light expansion.



Third-party data in the company's listing document forecasts the Chinese-style fast-food market will grow from about 810 billion in 2024 to 1.2 trillion yuan in 2029, representing 8.3% annual growth. But that market is highly fragmented.



Among China's top five Chinese-style fast-food players, LXJ ranked first in 2024 for both average daily sales per restaurant, at 15,100 yuan, and seat turnover rate, at 4.4. It was also China's only major brand with a vertically integrated operation — encompassing chicken farming, centralized kitchens and restaurant service. That full-value-chain gives the company better control over the quality and cost of its core chickens than relying on third parties.



<h4>Thin margins, modest market share</h4>



Despite its leading position, however, LXJ ‘s share of the Chinese-style fast-food industry is still quite small, at just 0.9%. The top five brands combined command just 3.6% of the market, underscoring the sector's extreme fragmentation. Intense competition in recent years, combined with growing consumer caution that has made &#34;poor man's meals&#34; into a popular mantra, have made it challenging for any single player to significantly boost its market share.



What's more, LJX's integrated supply chain may provide it with stability, but also requires significant upfront investment that results in higher raw material costs. Consequently, its gross margins hover between 20% and 25%, significantly below much fatter margins of 65% or more for restaurant peers like Xiaocaiyuan (0999.HK).



Hong Kong-listed Chinese restaurant stocks currently trade at price-to-earnings (P/E) ratios generally in the low- to mid-single-digits, including 16 times for Haidilao International (6862.HK), 14 for Xiaocaiyuan and 10.4 times for Green Tea (6831.HK). Applying a median multiple from that group to LXJ ‘s annualized earnings from last year suggests a potential market valuation around HK$7 billion ($898 million).



In summary, LXJ ‘s &#34;delicious yet affordable&#34; proposition — with an average check under 30 yuan — offers strong value for today's cost-conscious diners in China. Its business model is also solidly grounded, with its savvy marketing, integrated supply chain, and mix of self-operated and franchised restaurants. Now, the company's long-term trajectory will hinge on whether its new leadership under the younger Shu Xiaolong can steer it from regional powerhouse to become a true national titan.



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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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LXJ International Holdings Ltd., China's largest Chinese-style fast-food chain, is pursuing a Hong Kong IPO after previously aborting a domestic listing. The company reported revenue of 4.58 billion yuan and a profit of 371 million yuan in the first eight months of last year. LXJ aims to consolidate its market position through this public listing, its third attempt, with joint sponsorship from CICC and Haitong International. The fast-food market is fragmented, and LXJ's growth strategy includes expanding its franchise network while maintaining quality through company-owned stores. Despite its leading position, LXJ holds only 0.9% of the market share.

LXJ Sets Sights On Hong Kong IPO