Why does the Houyhnhnms say, “However it is happy that the shame is greater than the danger and hath left you utterly incapable of doing much mischief”? What does he mean by it? Do you think he is justified in having this view?

I think Gulliver's master means that the human species by itself looks weak. He says that he isn't convinced of the danger humans can represent. I suppose (given the evidence of Gulliver's stories, human judgment, and Gulliver's physical structure) he might well think humans to be weak.