Preheat oven to 350°F (175°C). Grease and flour two 8-inch round or 9×13-inch baking pans.
In a large bowl, sift and mix all-purpose flour and baking powder. Add sugar, salt, and vanilla extract. Whisk to combine.
In a separate bowl, cream softened butter at room temperature with coconut milk and water until smooth. Temper in softened eggs, one at a time, until fully incorporated into the wet ingredients.
Gradually mix dry ingredients into wet ingredients, alternating with ½ recipes liquid. to avoid lumps.
Spoon batter into prepared pans. Spread to ensure even thickness. Bake for 12-14 minutes (for layers) or 20-22 minutes (for 9×13) until a toothpick comes out clean.
Cool layers completely. In a bowl, whip powdered sugar, coconut milk, and softened butter at medium speed for 3-4 minutes until spreadable. Frost layers with a crumb coat, chill 15 minutes, then add final decorations. Sprinkle shredded coconut on top if desired.