Last month, Ninestar Corporation released the results for the first half of FY 2024 (see “Ninestar Stages a Comeback in Upbeat H1 2024”). After its business slipped in FY 2023, the firm is mounting an impressive rally this year with revenue up and profits skyrocketing. Achieving such a feat in an increasingly moribund market is even more remarkable given that Ninestar is banned from exporting to the United States, one of the world’s largest markets for printers and supplies.
To learn the secret of its success, we did a deep dive into Ninestar Corp.’s financial disclosures and other publicly available information. Because the Actionable Intelligence team is primarily focused on analyzing business activities related to consumables, our Ninestar Corp. analysis centered on its third-party supplies business. What we found, however, is also reflected in the Chinese firm’s other business units, although we didn’t explore these groups in as much detail.
Growing Despite the Odds
Most readers who frequent this website are aware that last year the United States government placed an embargo on Ninestar Corp. and several of its subsidiaries based in Zhuhai, China. The U.S. Department of Homeland Security (DHS) banned the companies’ products from being imported into the United States after determining they were using forced labor in violation of the Uyghur Forced Labor Prevention Act (UFLPA) (see “Ninestar Imports Banned by U.S. Government Due to Forced Labor Concerns”). The embargo did have an adverse material impact on Ninestar in FY 2023. While it didn’t mention the ban, Ninestar Corp. reported its revenue slipped 7 percent last year and it took an asset impairment charge of approximately $1.3 billion, plunging net profits deep into the red (see “Ninestar’s $1.3 Billion Asset Impairment Drives Gigantic Net Losses for Q4 and FY 2023”).
In its annual report for FY 2023, Ninestar Corp. broke out the performance of its third-party supplies group as its printer general consumables business. In FY 2023, the group weathered the UFLPA ban reasonably well and outperformed the company as a whole. Despite being excluded from the U.S. market, which we estimate accounts for about a third of all Ninestar’s non-OEM supplies business, revenue from its printer general consumables segment dipped only 8.7 percent. And perhaps more importantly, while net profits were slashed by about two-thirds, sales of Ninestar’s non-OEM supplies remained profitable.
In the first six months of 2024, Ninestar Corp. has successfully put all of last year’s bad news behind it despite the UFLPA ban remaining in place. In H1 2024, the company’s printer general consumables business reported revenue growth of 10.0 percent, net profit growth of 10.1 percent, and sales volume growth of 21 percent. While the Chinese firm offered no guidance for FY 2024, we believe its top line will see some improvement, and its bottom line should significantly improve and return to profits after last year’s net loss.
How can the company perform so well after being locked out of one of its major markets? It’s like the old Beatles’ song says—Ninestar Corp. gets by with a little help from its friends. Through worldwide merger-and-acquisition (M&A) activity that has been ongoing since 2014, the firm has established an international constellation of diverse subsidiaries and affiliated companies that provide Ninestar Corp. with advanced manufacturing capabilities and a far-flung network of distribution and logistics assets.
Over the past decade, the company has achieved unparallelled growth within the third-party supplies industry to emerge as much more than the non-OEM cartridge vendor it started as 25 years ago. Today, Ninestar Corp. is a leading hardware manufacturer and semiconductor designer as well as the world’s largest producer of third-party supplies. Our research indicates that to blunt the impact of the embargo and maintain access to the U.S. market, the company has revamped its supply chain and swapped out banned subsidiaries with affiliates not on the UFLPA Entity List.
Ninestar’s Meteoric Career
Ninestar Corp. was formed in 2001 by a group of executives that jumped ship from a subsidiary of the giant state-owned enterprise (SOE) Zhuhai Gree. Our research suggests the two firms have maintained beneficial ties ever since, and over the history of the company the close relationship with a huge local SOE has given Ninestar exclusive competitive advantages. In 2007, for example, Ninestar secured funding from Legend Capital, an affiliate of the Chinese computer maker Lenovo, which the third-party supplies vendor invested in to launch its Pantum printer company. Legend Capital was also among the investors involved with the Lexmark acquisition noted below. Today, Zhuhai Gree Financial Investment Fund remains a leading Ninestar shareholder.
Through a sophisticated sequence of deals, Ninestar successfully sidestepped the arduous initial-public-offering process to become a public company. In 2014, the firm used its Apex Technology chip subsidiary to purchase a publicly traded firm, Zhuhai Wanlida Electric Co., Ltd., and was subsequently listed on the Shenzhen Stock Exchange. Once public, Apex made a series of important investments like the 2015 purchase of rival chip designer Static Control Components (see “Apex Weds Static Control and the Reman Chip Industry Gets a Lot Smaller”), and fundamentally transformed itself before changing the name of the public company to Ninestar Corporation in 2017 (see “Apex Technology Changes Name to Ninestar Corporation”).
Arguably, Ninestar Corp.’s most notable acquisition came prior to the name change. In 2016, Apex successfully led a consortium of Chinese investors including PAG Asia Capital and Legend Capital in the purchase of the U.S. printer manufacturer Lexmark International (see “It’s a Done Deal: Apex Has Acquired Lexmark”). Since then, the company has made a number of other key acquisitions that have not grabbed as many headlines but nevertheless have allowed Ninestar Corp. to become the world’s largest producer of third-party consumables.
One of the largest investments that Ninestar Corp. made in its third-party supplies business concluded in 2020. The deal, which was begun in 2017, resulted in the full acquisition of two of China’s largest third-party supplies manufacturers: Zhuhai Zhongrun Jingjie Printing Technology Co., which markets products under the Ink-Tank brand, and Zhuhai Xinwei Technology Co., Ltd., which does business as Kingway (see “Ninestar Acquires Remaining Shares in Three Chinese Consumables Manufacturers, Discusses Coronavirus Impact”). The company also took a majority position in Zhuhai Tuojia Technology Co., better known to our readers by its English name, Topjet.
The three deals combined to catapult Ninestar to the top of the third-party consumables industry. Today, Ink-Tank and Kingway are wholly owned Ninestar subsidiaries, and Ninestar holds a 51 percent stake in Topjet. In addition to providing Ninestar with manufacturing assets in and around its hometown of Zhuhai, China, the acquisitions enhanced and expanded its distribution capabilities at home and abroad, including in the United States.
Stealth-Mode Acquisitions
When it made its Ink Tank, Kingway, and Topjet investments, Ninestar Corp. was transparent about the deals, and the companies figured prominently in the company’s financial disclosures while the acquisitions were underway. Since then, however, the firm has grown quieter about its M&A activities. In 2021, for example, without any formal announcement, Ninestar acquired Rainbow Tech International Limited, a Hong Kong-based trading company that owns the U.S. distributor Green Project (see “Ninestar Has Acquired Rainbow Tech and Green Project”). Although we followed Green Project closely for more than a decade, we only learned of the acquisition after studying Ninestar’s financial filing for the first half of 2021. When we requested details about the deal, Ninestar declined to discuss it with us.
More recently, we have discovered that Ninestar has quietly taken a major stake in another leading Chinese third-party cartridge manufacturer. In 2022, the firm invested in Chinamate Technology, a well-established third-party ink and toner cartridge producer based in Zhuhai that markets products around the world under the CM brand. In various financial filings since its 2022 annual report, including its recent filing for the first half of FY 2024, Ninestar has indicated that its Tuojia Technology subsidiary now holds 70 percent of Chinamate, which is listed in Ninestar Corp.’s financial disclosures under its Chinese business name, Zhuhai Huaren Zhichuang Technology Co., Ltd.
In 2022, the year that Ninestar Corp. acquired Chinamate, it reported that its printer general consumables business grew 11.4 percent to CNY 6.1 billion—or just shy of $900 million. While the business generated nearly a quarter of its total CNY 25.85 billion revenue (approximately $3.7 billion) in FY 2022, we noted in our coverage that the company provided few details in its financial disclosure about its non-OEM consumables business (see “With Revenue and Profits Up Again in FY 2022, Ninestar Continues to Fire on All Cylinders”). In its report, the company credited its ability to grow the top line of its printer general consumables business by successfully taking market share and improving sales of its “self-owned” consumables brands. It made no mention of Chinamate, however. In hindsight, that’s surprising given that Chinamate’s revenue must have contributed 25 percent or more of the roughly CNY 600 million year-over-year growth Ninestar’s non-OEM consumables business enjoyed in 2022.
Chinamate should be an important asset for Topjet and its majority shareholder Ninestar Corp. Renamed Chinamate I-Technology after the Ninestar and Topjet investment in 2022, the original firm was established in 2007 and it maintains global sales and distribution assets. Chinamate’s distribution network includes its Hong Kong-based Tiger Roar Limited subsidiary, which maintains a storefront on Alibaba for international customers, confirming that Chinamate is now part of Ninestar Corporation. It also provides additional manufacturing capacity. After expanding to three factories, including one producing new-build toner cartridges and another for ink cartridges along with a third plant for remanufacturing toner cartridges, Chinamate consolidated its production into a single facility in 2018, which Topjet and Ninestar Corp. will use to their mutual advantage. According to the firm’s website, the 18,000-square-meter production center operates 24 lines, some of which are fully automated.
Ourway’s Business Takes Off
Ninestar Corp. has, of course, gained much through its significant acquisitions and investments that have strengthened all its various business segments, including home and office printing, third-party supplies, semiconductors, and more. In terms of being able to grow despite the UFLPA ban, nothing has been more important than the expansive distribution and logistics networks of firms not banned by DHS that Ninestar Corp. has built. Import records show that since early in the second half of 2023, the company has used this network of non-embargoed firms to work around the ban, which is how it will likely be able to grow its U.S. business this year.
Of all its acquired assets, Ourway Image Tech Company seems like Ninestar Corp.’s most valuable subsidiary supporting trade in the United States since the UFLPA ban was imposed. When Kingway established its original production center in 2006 in Zhongshan, China, which is near Zhuhai, it set up Ourway Image Tech Company in the same city. Prior to Ninestar’s acquisition, Ourway acted as Kingway’s exclusive global distributor of its Star Ink- and Kingjet-branded consumables as well as other products. To support its North American business, Ourway US Inc. was opened in Brea, CA ,in 2015 and was part of the asset package that Ninestar acquired when it got Kingway. Neither Kingway nor Ourway is on the UFLPA Entity List.
Our research indicates that before Ninestar completed its purchase of Kingway, exports from Ourway Image Tech in Zhongshan to the United States included shipments of ink and toner cartridges direct to large third-party supplies vendors in the region along with a couple of containers each month to Ourway US. After Kingway became a wholly owned Ninestar subsidiary, import records detail that its U.S. subsidiary began working with Amazon Global Logistics and by late 2022 all the products the group imported were shipped to Fulfillment by Amazon (FBA) and Amazon Warehousing and Distribution (AWD) facilities. But that changed quickly. Last November, the Ourway US subsidiary closed abruptly after the volume of shipments made by Ourway Image Tech to Ninestar Technology Co., Ltd. exploded in the weeks following the UFLPA ban.
Established in New Jersey in 2001, Ninestar Technology Co. of Chino, CA, has been Ninestar Corp.’s main U.S. third-party consumables distributor for nearly 25 years. Over the last 15 months, Ninestar Technology Company has released a number of compatible cartridges that did not exist before the ban. The most recent example is the launch of Brother drums for machines released months after the embargo (see “Ninestar Technology Maintains Steady Pace of U.S. Introductions Despite Ban”). This is likely due to a shift in suppliers. Ninestar Technology Co. was supplied by various groups inside Ninestar Corp. before the ban, including the firm’s Hong Kong-based export subsidiary, Ninestar Image Tech Ltd, and Ninestar Image Malaysia, which produces Ninestar’s ink cartridges. By the end of August 2023, most of the shipments from these suppliers to Ninestar Technology Co. had stopped, and it was being supplied largely by Ourway Image Tech (see chart below).
Looking at shipment volumes shows just how profound the change at Ourway was. In 2022, import records from Descartes Datamyne indicate that Ourway Image Tech in Zhongshan shipped just over 12,000 kilos to Ninestar Technology Co. That figure jumped to over 428,000 kilos in 2023. And many of these shipments came from a new address for Ourway in Hong Kong, which we believe is the firm’s relocated offices. With over 800,000 kilos shipped from the start of the year through early September, it appears Ourway Image Tech will ship over 1 million kilos of product to Ninestar Technology Co. in 2024.
Leveraging Other “Unbanned” Assets
It appears that the UFLPA ban trigged other changes in the distribution and logistics operation at Ninestar and its various subsidiaries doing business in the United States. Around the same time that Ourway Image Tech shipments to Ninestar Technology Co. exploded, another Ninestar Corp. subsidiary, ICartridge Corporation, began receiving goods from Ninestar Technology Co.’s suppliers that were not embargoed. Established in 2015 in Mira Loma, CA, ICartridge Corp. had not received any shipments since 2019. On August 15, 2023, however, the firm began working with Amazon Logistics to bring in product from Imaging Lab Tech Limited, a Hong Kong-based Ninestar Corp. subsidiary, which had supplied Ninestar Technology Co. before its switch to Ourway after the ban.
Topwill Printronics is another firm not on the UFLPA Entity List that has been a supplier to both ICartridge and Ninestar Technology Co. Topwill Printronics is listed as a Ninestar Corp. subsidiary in Ninestar’s H1 2024 financial report. We believe that Topwill Printronics is the company formerly known as Ninestar Image Malaysia, which as noted above is a major ink cartridge producer. Both companies share identical addresses in Malaysia. While we can’t be certain, it seems likely that Ninestar Corp. did not want to risk having shipments from Ninestar Image Malaysia turned away because of the embargo so it changed the name of the subsidiary to Topwill Printronics.
ICartridge and Ninestar Technology Co. are not the only Ninestar Corp. U.S.-based subsidiaries that have continued to import products from the parent company’s unembargoed affiliates. After Static Control Components discontinued shipments from Hong Kong-based Ninestar Image Tech in July 2023, import records indicate that several shipments of ink and toner cartridges were sent to Static Control Components between July and September 2024 from Topwill Printronics. In 2023 and 2024, Static Control was also sent multiple shipments from Zhuhai SCC Trading Co. Ltd., which we believe to be part of Ninestar Corp.’s so-called SCC Asset Group. Lexmark International is also named as the consignee of numerous shipments of toner cartridges over the past couple of months from Zhuhai Xielong Plastic & Electronics Company, a company which Ninestar Corp.’s financial disclosures indicate it holds a position in.
While the companies discussed above were not placed on the UFLPA Entity List and embargoed, even some banned companies appear to be operating unrestricted in the United States. For example, Pantum hardware that we believe was manufactured by Zhuhai Pantum Electronics Co., which was banned, was announced in the United States ten months after the embargo was announced (see “Despite UFLPA Ban, Pantum US Rolls Out New Elite Pro Series”). Moreover, Pantum hardware continues to be sold on Amazon.com in the United States.
Amazon.com also remains an important channel for certain well-known Ninestar third-party cartridge brands in the United States. Ninestar Corp.’s financial statements make it clear Lemero is a subsidiary. Lemero maintains its Amazon storefront. The myCartridge brand is also widely believed to be Ninestar’s. MyCartridge is run by Super Image Office, which shares the same Mira Lona, CA address as Ninestar’s ICartridge subsidiary. The myCatridge Amazon storefront remains in operation.
FY 2024 Looks Good
At the start of this post, we speculated that Ninestar Corp.’s business should be much better this year than it was in 2023. In part, that’s because the company does not appear to be losing any market share in the United States. After the ban was first put in place, the firm’s business was certainly disrupted for a few months. However, it is clear that Ninestar Corp. has adjusted its operations and its performance during the first half suggests FY 2024 should be a good one for the firm.
We have been surprised that Ninestar Corp. has managed to maintain its U.S. business. When the UFLPA ban was initially announced, it seemed the company would see a double-digit top-line decline and that revenue would continue to drop as it continued to lose share. Now we understand that will not be the case. Because it is now made up of various acquired third-party supplies manufacturing subsidiaries, including Chinamate, Ink-Tank, Kingway, and Topjet, that are not on the UFLPA Entity List of banned companies, it appears the firm will continue to thrive in the United States.
While our assessment of Ninestar’s future is bullish, we wonder what that says about the effectiveness of the UFLPA. It seems the way the United States is enforcing Ninestar’s placement on the UFLPA Entity List is as an embargo that restricts only some of Ninestar’s brands but not others. To our eyes, that would seem to be a feckless approach to curtailing the business of any large corporation with multiple subsidiaries and brands. We have posited the example of a large manufacturer like General Motors. In this example, would it make sense for a ban to be placed only on GM-branded vehicles, but Buicks, Cadillacs, and Chevrolets could continue to be imported? If so, it’s not much of a ban in our humble opinion.
