To toast coconut: In a dry frying pan over medium-low heat, toast the coconut until golden brown (2-3 minutes). Immediately pour into a plate to cool, set aside. (You can also do this while the rice cooks.)
Place rice in a fine mesh strainer and rinse until water runs mostly clear, about 1 minute.
Pour the rice, coconut milk, water, sugar, and salt into a medium saucepan and stir to combine.
Leaving the pot uncovered, bring rice to a boil over high heat. Stir once, cover, and reduce heat to low.
Simmer covered for 17 minutes. Remove from heat and let rest covered for 10 minutes. Fluff with a fork and serve with toasted coconut, if desired.
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Notes
Light coconut milk can be substituted if desired.
For variation, omit toasted coconut. Coconut rice can be served plain, or with grated lime zest, sliced scallions, chopped fresh cilantro, toasted slivered almonds, or fresh fruit, such as mango or pineapple.
Instant Pot Instructions: Decrease water to ½ cup. Mix all ingredients (except shredded coconut) in pressure cooker. Put lid on, select Pressure Cook (High), and set timer for 3 minutes. Let pressure release naturally for 7 minutes. Release any remaining pressure, remove lid, and fluff rice. If desired, turn off heat and leave covered for 10 minutes after fluffing to let rice soak up moisture.