M1 launched an innovative mobile programme - Take3 – which provide clients with handsets and free them from upfront expenses last week. Clients sign up for a bill plan that is of best fit, take mobile phones of their choice within the eligible bill plan tiers and take them back in exchange for new handsets after as soon as nine months. There are four plans tiers in all, with the higher tiers offering popular models like Nokia E71.

There will, however, be an early termination clause. Customers who cut their mobile lines before the end of their 24-month service contract or downgrade their bill plans will have to pay charges computed according to the period remaining in their contracts.

Given that it lacks bundling capabilities, M1 has to find ways to innovate. This programme appears to be a positive move, as it enables M1 to lock in some of its existing customers and gain new ones. Margins, however, may be slightly affected, as it will have to bear the costs of the new handsets to clients who sign up.

We are maintaining our earnings estimates for M1, expecting it to fall 5.6% this year to S$141.6m before growing 4.6% in FY10 to S$148.1m. At S$1.48, it has a prospective yield of 8.6%, which is still a shade below StarHub’s 9.1%. Based on DDM, we attain a target price of S$1.52. Maintain NEUTRAL.