Toast the coconut: In a dry skillet over medium heat, cook 1/2 cup shredded coconut, stirring often, until golden and fragrant, 3–5 minutes. Let cool.
Beat the base: In a mixing bowl, beat softened cream cheese with powdered sugar and a pinch of salt until super smooth and fluffy.
Mix the pudding: In a separate bowl, whisk instant pudding with coconut milk until thick, about 1–2 minutes.
Combine: Beat the pudding mixture into the cream cheese until no lumps remain.
Add vanilla and coconut extract.
Fold in: Gently fold in whipped topping and most of the toasted coconut, saving some for garnish. Taste and adjust sweetness.
Garnish and serve: Spoon into a serving bowl, sprinkle with remaining toasted coconut, and serve right away or chill for 30–60 minutes for a thicker set.