With 92% Family Ownership, Will Capital Still Bet on Laoxiang Chicken's IPO Journey?

Deep News
09/28

Before its latest IPO attempt, the company quietly completed a share buyback round, raising the founding family's shareholding to 92.02%, with external institutional shareholders almost entirely cleared out. Meanwhile, power within the family has been transferred, with the post-1980s generation officially taking charge.

Recent controversies over pre-prepared foods have brought attention to one company due to its standardized "three-color labeling" system (pre-prepared, semi-prepared, freshly made) - none other than Laoxiang Chicken, which is currently sprinting toward an IPO.

On July 7, Laoxiang Chicken, once considered a candidate for "China's first Chinese fast food stock," submitted its listing application to the Hong Kong Stock Exchange once again. For those in the restaurant industry, its IPO marathon has become dizzying to watch: repeated attempts followed by repeated setbacks, with this marking its fifth attempt.

This time, Laoxiang Chicken chose to restart in Hong Kong stocks, with China International Capital Corporation and Haitong International serving as joint sponsors. Before listing, it quietly completed a share buyback round, raising the founding family's shareholding to 92.02%, with external institutional shareholders almost entirely cleared out. Simultaneously, power within the family completed its transition, with the post-1980s generation officially taking charge.

Will this family-controlled enterprise stage another "derailment" scenario?

**From A-Shares to Hong Kong Stocks: A Three-Year, Three-Application Listing Marathon**

In 1982, 20-year-old Shu Congxuan returned home after military service with only 1,800 yuan in savings and 1,000 chickens, embarking on his first entrepreneurial journey. No one expected that these chickens would not only sustain him but also plant the seeds for a future restaurant empire.

In the early days, Shu Congxuan raised these chicks at home, gradually developing his own breeding and sales model. Years later, he turned his chicken business into restaurants, winning customer recognition with chicken soup stews and chicken dishes, taking initial shape.

In 2003, Shu Congxuan experienced his first real career turning point when he opened his first store, "Feixi Old Hen," marking the leap from simple breeding to chain dining. Over the following decade, he opened more than 130 stores in Anhui Province. However, he understood that relying solely on the Anhui market couldn't create a national brand.

Consequently, he rebranded to "Laoxiang Chicken," expanded into Nanjing, Wuhan, and other cities, and acquired Wuhan Yonghe, launching nationwide expansion. During this period, he decisively eliminated live poultry retail, outsourced breeding to factories, and concentrated on restaurant chains, laying the foundation for future national expansion.

In 2020, facing dining industry challenges, he insisted that "even if I have to sell cars and houses, I must ensure 16,328 employees have food to eat and work to do." This transformed Shu Congxuan from a local boss into "China's best boss" in netizens' eyes, making Laoxiang Chicken a viral restaurant brand.

After this "incident," Laoxiang Chicken accelerated expansion. By the end of 2021, national stores exceeded 1,000, with revenue reaching 4.393 billion yuan. With stable operational experience and massive scale, Laoxiang Chicken began considering capital markets.

IPO preparations began in September 2021, signing agreements with Guoyuan Securities for counseling. In May 2022, the company first submitted its prospectus to the Shanghai Stock Exchange, planning to raise 1.2 billion yuan for headquarters construction and new store openings in East China, but faced questioning over "regional dependency."

By February 2023, it updated materials for a second attempt at capital markets. However, troubles emerged before doors opened. On March 31, market questions arose, followed by securities regulators issuing 45 inquiries covering controlling shareholder bribery rumors, employee social insurance gaps, food safety complaints - each hitting vital points.

Six months later, on August 23, Laoxiang Chicken announced withdrawal of its IPO application. Five days later, the Shanghai Stock Exchange officially terminated the review. The public reason was "mismatch between strategic development and financing plans," but industry insiders understood: stories based solely on store expansion and scale could no longer move regulators or investors.

Hong Kong stocks became the new target. In January 2025, Laoxiang Chicken proclaimed itself the "first Chinese fast food stock." However, less than six months after the initial Hong Kong submission, it "expired" due to failure to update materials timely. Nevertheless, Shu Congxuan and his team moved quickly, releasing an updated prospectus five days later with unchanged joint sponsors CICC and Haitong International. This urgency and sincerity were jokingly described by netizens as "sufficient sincerity, insufficient preparation."

Behind this series of submissions, withdrawals, and updates lies Laoxiang Chicken's strong thirst for capital. The prospectus clearly states funds will target supply chains, new stores, and digitalization, with the core mission of escaping "Anhui dependency" and achieving true nationalization.

**Major Shareholder "Overhaul": Family Centralization After Capital Retreat**

During A-share attempts, Laoxiang Chicken was officially "Anhui Laoxiang Chicken Catering Co., Ltd."; when switching to Hong Kong stocks, it transformed into "LXJ International Holdings Limited." The name sounds more international, but actual operating entities remain unchanged. In other words, the stage changed, but the cast remained the same.

Interestingly, founder Shu Congxuan, the soul figure supporting Laoxiang Chicken's empire, holds zero shares himself. A-share prospectus disclosed that actual equity rests with his son Shu Xiaolong, daughter-in-law Dong Xue, and daughter Shu Wen, who collectively hold 91.32%, making Laoxiang Chicken a typical family enterprise.

Don't assume Shu Congxuan lacks influence with zero shareholding. On the contrary, according to the family's "Joint Control Agreement," when board or shareholder meetings disagree, Shu Congxuan makes final decisions. Others have shares; he has the "imperial sword" - one word determines everything.

This arrangement attracted regulatory curiosity and questioning. IPO feedback explicitly asked Laoxiang Chicken to explain why the founder holds no shares and whether this involves regulatory avoidance.

Besides ownership structure issues, Shu Congxuan's "old accounts" were also scrutinized. Early bribery rumors were directly written into regulatory feedback: do they constitute major violations? Will they affect enterprise qualifications? Even Laoxiang Chicken's application for national leading enterprise status was questioned for compliance.

Regulatory inquiries came like continuous bombardment; Laoxiang Chicken had 30 days to respond item by item or face review termination. Although review wasn't terminated, indicating responses were submitted, document contents were never publicly disclosed.

In 2023, Laoxiang Chicken welcomed second-generation succession. In November 2023, Shu Xiaolong officially took over as chairman, with Shu Congxuan fully retiring behind scenes. Subsequently, in December, the founding family's "Joint Control Agreement" terminated, formally transferring power from parents to children.

Shu Xiaolong, born in 1988, is a "second-generation entrepreneur" who joined Laoxiang Chicken in 2012, considered a very "down-to-earth" heir among family enterprises. Despite being a "rich second generation," he didn't directly assume executive positions but started from grassroots - breeding farm feeder, store server, store manager, regional manager - working his way up step by step, only replacing his father as general manager in 2015.

Since then, father Shu Congxuan handled strategy while son Shu Xiaolong managed execution, working in harmony. Shu Congxuan once publicly praised his son: "He can endure hardship and is very diligent; I trust him." In fact, Laoxiang Chicken's fourth and fifth-generation stores were personally designed by Shu Xiaolong. Shu Congxuan reflected: "I could never design such beautiful stores in my lifetime." In his father's eyes, his son is not just a successor but a driving force for enterprise transformation and upgrading.

Simultaneously, shareholder seats staged a "game of thrones." In early 2024, Laoxiang Chicken chose to buy back all shares from Maixin Investment and Guangfa Ganhe, paying 98.2446 million yuan and 55.2104 million yuan respectively, allowing both early institutional shareholders to exit gracefully.

Notably, when they entered in December 2021, they invested 89 million yuan and 50 million yuan respectively for less than 1% of Laoxiang Chicken shares, valuing the company at approximately 18 billion yuan. However, within just two to three years, Laoxiang Chicken's valuation plummeted to 8.5 billion yuan, a 52.78% decline - essentially halved.

The two institutions' exit wasn't surprising. 2021 was peak time for restaurant investment, with Laoxiang Chicken riding high as "Anhui's KFC." But circumstances changed rapidly: social insurance issues emerged, Shu Congxuan bowed and apologized on camera; Shanghai stores were fined 80,000 yuan for using expired chicken oil, adding food safety concerns.

Most critically, performance growth couldn't match valuation pace. Investment institutions naturally chose to "secure profits" and leave. After foreign capital exit, Laoxiang Chicken's equity concentrated further in family hands. According to the latest Hong Kong prospectus, Shu Xiaolong, sister Shu Wen, and wife Dong Xue control 92.02% voting rights through three wholly-owned companies.

Remaining equity: 4.98% with Harvest Capital, 3% allocated to employee shareholding platforms. Essentially, most core positions at Laoxiang Chicken are controlled by family members.

**Impressive Performance Can't Hide Concerns: Where's the Family Governance Ceiling?**

Looking solely at financial statements, Laoxiang Chicken indeed has confidence to impact capital markets. As of April 30, 2025, Laoxiang Chicken operated 1,564 stores across 58 Chinese cities, including 911 directly-operated and 653 franchised stores, covering nine provinces.

Performance-wise, for 2022, 2023, 2024, and the four months ending April 30, 2025, Laoxiang Chicken achieved increasing revenues of approximately 4.528 billion yuan, 5.651 billion yuan, 6.288 billion yuan, and 2.120 billion yuan respectively; annual profits of approximately 252 million yuan, 375 million yuan, and 409 million yuan respectively.

According to the prospectus, citing Frost & Sullivan data, in 2024, by gross transaction value, Laoxiang Chicken was the largest Chinese fast food brand in East China with 2.2% market share, approximately 2.5 times the second-largest market participant.

Supporting these figures is Laoxiang Chicken's years of tackling "standardization challenges." As China's only full-chain Chinese fast food company, it owns three chicken farms, two central kitchens, and eight distribution centers. Even stir-fried vegetables are broken down into quantified steps, with stores equipped with cooking robots and automatic steamers.

However, hidden concerns lurk beneath impressive data. Most prominent is gross margin - only 24.2% in 2025, less than half of Xiangcun Basic's level and incomparable to Xiaocaiyuan's 70% gross margin. The reason is simple: full-chain heavy asset models burn too much money, with most profits invested in supply chains.

Franchise model problems are more obvious. While franchise store numbers surged, revenue contribution remains under 20%. More embarrassingly, franchise store margins continuously declined from 28.9% in 2022 to 20.1% in 2024. Although 2025 showed some recovery, it's clear franchise management systems remain unresolved.

Table turnover rates more directly illustrate problems: Anhui directly-operated stores achieve 5.7, while out-of-province franchises only 3, meaning external franchise business is nearly half as good.

These problems' roots actually point to family governance "ceilings." For instance, is franchise system chaos due to family loyalists managing franchises with insufficient expertise? Are consistently low gross margins due to related-party transactions inflating costs? These questions can't be answered by beautiful financial statements alone.

Capital markets have witnessed too many family enterprise rises and falls: they can develop rapidly through cohesion, but once scale expands, irregular governance problems emerge - lightly causing listing obstacles, severely destroying companies.

Laoxiang Chicken obviously recognizes these concerns. Its latest prospectus specifically emphasizes being "the first Chinese fast food enterprise to regularly publish self-inspection reports" and lists digital upgrading among fundraising purposes.

However, capital markets examine actual governance structures rather than slogans - such as establishing independent supervisors, introducing external independent directors, and building related-party transaction firewalls, which Laoxiang Chicken hasn't fully implemented yet.

Current Laoxiang Chicken stands at the crossroads of transforming from family enterprise to public company. Passing Hong Kong stocks gives it opportunities to shed its "Anhui local restaurant" label and become a truly national brand; but if governance thresholds aren't met, even with listing, it might repeat many family enterprises' pattern of "listing as peak."

This tug-of-war's outcome remains unwritten, but one point is certain: Laoxiang Chicken's story reminds the entire Chinese fast food industry that family cohesion can conquer territories, but defending them requires standardized governance and open attitudes. Capital markets never believe in "hometown sentiment" - only rules and value.

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